Why does every major grocery chain have their brand next to the national brands? Are the factories making these the same but putting a different label on it? Or does Target and Kroger have factories that produce all the products? Where do these store brands come from?
In: Economics
It’s a mix. Sometimes it is exactly the same product, made in the same place, just with a different label. Other times it was made by a company that specializes in producing generic versions of the product and likely sells to lots of different grocery stores under different labels.
The companies that run the stores themselves generally don’t also directly oversee the production of the house brands. Target’s expertise is in retail, not potato chips.
Oftentimes yes. A national chain might contract an established manufacturer to produce their “house” brand product at a lower cost in exchange for a large order volume.
This chain can then sell that product at their stores for a lower cost and the manufacturer benefits from selling product to the chain. Many manufacturers are in this kind of business, and the chain’s house brand might be functionally identical to that manufacturer’s own brand, just with a lower cost and different packaging.
The downside to this (sometimes) is that the manufacturer is producing products that directly compete with their own brands at a lower price point.
This can negatively impact the manufacturer as their profit margins decrease and they become increasingly dependent on those high volume/low profit orders to keep their lights on.
Source: Worked for a large [redacted] company whose products you definitely have in your home/work that also produces a lot of house brands for national chains.
A lot of the time is it the same item but different qualities, for example, Mcvites (UK biscuit company) will pay for the biscuits cooked in the center of the oven which are softer and lighter. The own brands will then get the ones on the outside which are not as evenly cooked and crunchier.
There are probably loads of examples of this.
Stores sell their own brands because they have higher margins, making the store more money!
So stores like Kroger or Target don’t have their own factories. They may develop the recipe in house but use contract manufacturers to make the items. For example, once a commercial bakery company has a facility that can make cookies, it’s easy to make different similar cookies. So a factory could be hired by Keebler to make their Chocolate Chip cookies one day/week, and then they adjust the recipe/ingredients and machinery (say, to stamp 2/75″ cookie size instead of 3″) to make Target store brand the next day/week. Yes, even national brands use contract manufacturing facilities even if they own their own (say for seasonal varieties, temporary increase in demand, cheaper than building new line with different equipment, etc). Or a national brand may rent out their facility, basically acting as a contract manufacturer for store brand items, as a way to fill production downtime. They are usually not the exact same recipe even if made in the same facility.
Now the difference is in the layers of money changing hands… for a national brand, Kroger pays Keebler something like $2 for a package they sell for $4. Kroger can develop their store brand and pay the contract manufacturer $1 to make that same package, and then sell it for $3.50 to undercut Keebler while also making more profit.
I represent a large staple manufacturer. Behind our brand, our second biggest client is Walmart. We basically do a run of our product, stop the machines, and load the Great Value packaging and restart the machine. If you bought the last of our product and the first of theirs, you’re getting the exact same thing.
That being said, I once picked up a can of Jif and an identical store brand that *seemed* to be the same thing. Same ingredient list, nutritional info, etc. but when I got it home it was *NOT* the same thing. The store brand tasted like peanut flavored paste. I learned not to buy that anymore.
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