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.

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