# The rise of private label and what it does to brand power
A shopper in a Tesco aisle picks up a bottle of tomato ketchup. It looks almost identical to Heinz: same red cap, similar glass shape, a tomato on the label. It costs roughly 30% less. This is Tesco's own-brand product, made under contract by a manufacturer the retailer chooses, priced by the retailer, and placed by the retailer exactly where it wants on the shelf.
That single bottle is a small demonstration of a much bigger shift: the retailer, not the brand, increasingly decides what gets bought, at what price, and who profits from the sale. This lesson looks at how private label (also called "own brand" or "store brand") redistributes power, margin and customer loyaltycustomer loyaltyYour customers' propensity to repeatedly purchase from you and resist competitive offers, driven by satisfaction, habit, trust, and switching costs.View full definition → across the retail value chain.
Private label products are manufactured for a retailer and sold under the retailer's own brand (or a retailer-controlled sub-brand), rather than under a national manufacturer's brand like Heinz, Coca-Cola or Procter & Gamble.
Three tiers are common:
Private label is not a niche anymore. In Europe, own-brand penetration is estimated at around 35 to 40% of grocery volume in markets like the UK, Germany and Spain (Nielsen/NIQ and IRI/Circana estimates, 2024 to 2025 range). In the US it is lower but rising, estimated around 20% of dollar sales (Private Label Manufacturers Association, PLMA, estimates). These are directional figures, exact shares vary by category and country.
National brand manufacturers (Heinz, Unilever, PepsiCo, Nestlé): want shelf space, price premiums, and a direct emotional relationship with the shopper built through advertising.
Retailers (Tesco, Carrefour, Walmart, Kroger, Aldi, Lidl): want to control the shelf, capture more margin, and own the customer relationship through loyalty data.
Contract manufacturers: the often-invisible players who actually produce private label goods. Many are large, specialized firms (for example, in packaged food, companies like Bakkavor in the UK produce private label ready meals for multiple UK retailers). They compete on cost and reliability, not brand.
Discounters (Aldi, Lidl): a distinct category. Their entire model is built on private label, often 80 to 90%+ of their range, letting them skip national brand listing entirely and undercut full-line supermarkets on price.
Regulators and competition authorities (the UK's Competition and Markets Authority, the CMA; the European Commission's DGDGData governance is the set of policies, roles, and processes that ensure data is accurate, secure, well-defined, and used responsibly across an organization.View full definition → COMP; the US Federal Trade Commission, FTC): monitor whether retailers' growing power over suppliers tips into abuse, such as unfair delisting threats or excessive fees for shelf placement.
Traditionally, brands paid for prominence: "slotting fees" (payments to secure shelf space) and trade promotions. Retailers now use private label to reduce dependence on that system. If Tesco does not need Heinz's ketchup to fill the shelf, Heinz has less leverage in price negotiations.
National brands typically sell to retailers at a wholesale price, and the retailer adds a margin. With private label, the retailer effectively becomes its own supplier (via contract manufacturing), removing one layer of markup. Estimates commonly cited in the industry suggest private label gross margins for retailers can run several percentage points higher than equivalent national brand products, though exact figures are commercially sensitive and vary by category and retailer.
A simplified illustration (illustrative numbers, not sourced from a specific filing):
Even at a lower shelf price, the retailer's margin rate is higher. That's the quiet mechanism behind the hook.
When a shopper trusts "Tesco Finest" or "Kirkland Signature" (Costco's private label) as much as or more than a national brand, the retailer, not the manufacturer, owns that loyalty. Costco is a striking case: Kirkland Signature is estimated to represent around a quarter or more of Costco's total sales (Costco has disclosed Kirkland's growing share in investor communications; exact current figures should be checked against Costco's investor relations page). Costco members often join partly *because* of Kirkland, not despite it.
Retailers can now credibly threaten national brands: "delist you, or reduce your terms, and we'll expand our own line instead." This is a real shift in bargaining power, though it is not unlimited. Iconic, must-stock brands (CocaCocaCustomer Acquisition Cost: total sales and marketing spend divided by the number of new customers acquired over the same period.View full definition →-Cola, Nutella, certain pharma-adjacent brands) retain leverage because shoppers will switch stores to get them. Retail power grows strongest in categories where brand loyaltybrand loyaltyYour customers' propensity to repeatedly purchase from you and resist competitive offers, driven by satisfaction, habit, trust, and switching costs.View full definition → is weak and product differentiation is low: think basic dairy, pasta, foil, batteries. It grows weakest where brand equitybrand equityThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.View full definition → is strong: think premium spirits, iconic snacks, or baby formula.
Because retailers both sell national brands *and* compete against them with private label, competition authorities watch for conflicts of interest: does a retailer use sales data from national brands to design a copycat private label product, then bury the original on a lower shelf? The UK's Groceries Supply Code of Practice (GSCOP), enforced by the Groceries Code Adjudicator (GCA), specifically regulates how large UK grocers treat suppliers, including rules against excessive delisting risk and unfair cost demands. The EU has similar protections under the Unfair Trading Practices Directive (UTPD, 2019) for food supply chains. These frameworks exist precisely because the power imbalance between large retailers and smaller suppliers is real and can be exploited.
Knowledge check
1. What is the fundamental shift that private label represents in the retail value chain?
2. A retailer launches a premium private label range priced at or above national brand prices, similar to Trader Joe's or Tesco 'Finest'. What is the strategic logic behind this, compared to a value-tier private label?
3. Why might a standard/mainstream-tier private label product be deliberately designed to visually resemble the leading national brand (similar packaging colors, shape, imagery)?
4. Select ALL correct answers about how private label growth affects national brand power.
Select all the correct answers.
5. Select ALL correct answers that correctly describe the three private label tiers described in the lesson.
Select all the correct answers.
National brands are not passive. Their countermoves include:
The result is not a total takeover by private label, but a continuous negotiation. Category by category, the winner depends on brand strengthbrand strengthThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.View full definition →, switching costs, and how replicable the product is.
🎬 [VIDEO: "Why Store Brands Are Taking Over Grocery Shelves" - youtube.com - search for recent explainer coverage from a business news channel (e.g. CNBC or Wall Street Journal) on private label growth trends]