Business
The spread of store brands does not threaten all manufacturer brands equally. Second-tier brands are squeezed out, while leading brands keep a lasting edge in shoppers' minds, though that edge has narrowed over the years.
A brand maker that also produces store-brand goods for retailers falls into a vicious circle. The retailer pushes it to share its latest technology, which closes the quality gap with its own brand. Over the long run this work is rarely profitable and should stay a side activity at most.
There is no silver bullet against store brands. Manufacturers have to partner with retailers, innovate brilliantly, pick their fights selectively, and offer winning value, all at once as one concerted push. Any one of these alone fails.
Store brands no longer compete only on low price. Retailers now build tiered ranges, including premium lines that match or beat branded goods on quality, and they are winning even in sophisticated categories like cosmetics and baby food.
When a retailer grows powerful enough to sell its own brand, the manufacturers that stock its shelves end up competing against the very chain they depend on. Every store-brand item sold is one fewer branded item sold, so the retailer gains directly at its supplier's expense.
A retailer's own brand can be bought only in that retailer's stores, which sets it apart from rival chains and ties shoppers to it. Combined with taking sales away from the manufacturers, this moves power from the makers of brands to the sellers who control the shelf.
Brand manufacturers still hold old beliefs that store brands are inferior and that shoppers distrust them, even though shoppers now view store brands quite positively. Until they let go of those beliefs, manufacturers have no workable strategy to compete.
Manufacturer brands have relied on two advantages: being available everywhere and leading on innovation. Store brands now undercut both, so brands that lean only on those advantages are exposed.
A retailer that pushes its own brand too far can actually lower its own profits. That limit leaves room for manufacturers to work with retailers instead of only fighting them.