What is a 'Private Brand'

A private brand is a good that is manufactured for and sold under the name of a specific retailer, and competes with brand-name products. Also referred to as "private label" or "store brand," prices for private brands tend to be less than those of nationally recognized name brand goods. Private brand items can provide retailers, such as supermarkets, with a better margin than the brand-name goods they also carry.

Breaking Down 'Private Brand'

Private brand goods are usually made by third-party or contract manufacturers, often on the same production lines as other brands. They can differ only in labeling or be entirely unique. Private branding is a cost effective way to produce a product without the investment into large manufacturing facilities, designers, quality assurance personnel or a specialized supply chain. By using outside manufacturing help a retailer can offer a wide range of private label goods that appeal to both cost-conscious shoppers as well as premium-product consumers.

Most retailers feature private brands. This is especially true of supermarkets, many of which have more than one private label. For example some supermarkets offer low-cost private or generic brand goods and also feature premium private brands. Some even offer an organic-only private brand option. Often, these products share the same shelf space. Other examples of private brands include hardware stores that may offer private label paint or other items, and hair salons that may offer their own shampoo or beauty products. Supermarket private brands are available in nearly every category, from personal care and beverages, to condiments and frozen foods. Private brands make up about 15% of total U.S. supermarket sales, though that figure is growing as private branding becomes more prevalent.

Private Brand Benefits

Private brand goods offer several benefits to retailers. They include:

  • An expanded product line: Being able to offer a greater variety of products appeals to cost-conscious and premium consumers.
  • Control over marketing: Private brands allows a retailer to tailor a product to local needs and tastes.
  • Control over production: Private branding affords retailers control over a third-party manufacturer's operations, ingredients and quality.
  • Image and cachet: A premium private brand can create a sense of exclusivity and that the store is a curator of appealing products.
  • Loyalty: If a retailer can private brand a popular, unique product they can ensure repeat visits.
  • Profitability: Private brand goods can be more profitable than name-brand goods.

On the downside, a retailer can lose big if it makes a poor choice on what products to private brand. Some branded merchandise can be returned to a distributor or manufacturer, but many private brand goods cannot be and could wind up in clearance or as dead inventory. Also, some manufacturers may require minimum orders, so the loss can be significant if a private brand item does not sell. Also, there are risks associated with relying on an outside manufacturer.

RELATED TERMS
  1. Brand Management

    Brand management is a function of marketing that uses techniques ...
  2. Brand

    A brand is an identifying symbol, mark, logo, name, word and/or ...
  3. Brand Equity

    Brand equity refers to a value premium that a company generates ...
  4. Brand Identity

    Brand identity is how a business presents itself to, and wants ...
  5. Private Purchase

    A private purchase refers to an investment in which an investor ...
  6. Product Line

    A product line is a group of related products manufactured by ...
Related Articles
  1. Investing

    Big Money In Private Labels

    The growth of private label and store brands represents an interesting opportunity for investors.
  2. Financial Advisor

    Why These Are the Most Valuable Brands of 2018

    A company's brand can be worth billions of dollars. Here are the most valuable global brands in 2018.
  3. Personal Finance

    Amazon Quietly Expands Private Labels (AMZN)

    Amazon.com Inc. quietly launched two new brands this week. These brands sell coffee and baby food and are Amazon's first perishable food private labels.
  4. Small Business

    Well-Established Brands Worth Billions

    We look at the most valuable brands in the world, and explain what makes them successful.
  5. Small Business

    How Companies Create A Brand

    We take a hands-on approach to creating a brand, and see what it can mean as an investor.
  6. Investing

    Amazon to Make its Own Athletic Wear Line

    Guess who has to worry about Amazon now? Nike and Lululemon.
  7. Small Business

    Top 100 Most Valuable Global Brands 2016

    A look at the BrandZ 100 Most Valuable Global Brands Report
  8. Investing

    Best Buy Betting On House Brands

    Best Buy uses its house brands strategically, but is this hurting the company or helping it to stay on top?
  9. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  10. Investing

    Amazon's Private Label Boosted by Whole Foods: Analyst

    The Seattle-based company's earnings from private labels are expected to touch $20 billion by 2022.
RELATED FAQS
  1. How does brand image and marketing affect market share?

    Building a positive brand image is a must for companies that want an edge over the competition. Learn how marketing and branding ... Read Answer >>
  2. How does privatization affect a company's shareholders?

    The most recognized transition between the private and public markets is an initial public offering (IPO). Through an IPO, ... Read Answer >>
  3. Investment Banking vs Private Equity

    Despite both shared similar characteristics, they are different in many ways. Check out how private equity and investment ... Read Answer >>
Hot Definitions
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  2. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  3. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  4. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  5. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  6. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center