Welcome to today's Deep Dive. Next time you are
at the grocery store, I want you to look at the
cheap store brand item. And then look at the
expensive premium national brand item sitting
right next to it. Right, because what if I told
you they might have actually been made by the
exact same people? In the exact same factory.
Yeah. Today we are pulling back the curtain on
the multi -billion dollar machinery of private
labels. We're looking at the products you buy.
every single day. The things in your pantry,
your fridge. Even the credit cards in your wallet.
Our mission here is to shortcut your path to
being a truly well -informed consumer using a
really comprehensive Wikipedia article on private
labels as our guide. And you know, this goes
so far beyond simply choosing between a name
brand cereal and the store's version just to
save a few cents. Oh, absolutely. When you examine
the actual mechanics of private labels, you are
looking through this. really fascinating lens
into global supply chains. And marketing psychology.
Exactly. It effectively amounts to the illusion
of choice. Okay, let's unpack this. We need to
set a baseline first. A private label or a store
brand or house brand is basically a brand owned
by a company that competes alongside other businesses'
brands. And crucially, it is offered exclusively
by the firm that owns it. Right. We all know
the big ones. You've got Kroger's Simple Truth.
Walmart's great value. Target's market pantry.
Aldi's specially selected. Sometimes they literally
just put the store's name right on it. Like Joe's
O's cereal at Trader Joe's. Exactly. But before
we get into the actual manufacturing secrets,
there is this tangled web of terminology we should
clear up. Yes. This trips people up all the time.
Yeah. In terms of private label and white label.
Right. They get thrown around interchangeably
in boardrooms and, you know, consumer articles
constantly. But structurally, they're completely
different business models. I mean, I always assume.
White labeling was just the industry term for
making a store brand. Like you buy a generic
product and slap a literal white label on it.
It's a very common misconception. A private label
product is created exclusively for a specific
client. The retailer dictates the precise demands.
They set the exact ingredients, the dimensions,
the performance metrics. So it is entirely custom
tailored to their target demographic. Exactly.
A white label product, on the other hand, is
a generic, already designed item. Sold non -exclusively
to multiple retailers. Right. The manufacturer
owns the formula. They might let you tweak the
packaging or make highly limited customizations,
but the core product is theirs. So you'll find
the exact same white label software or a white
label water bottle sold by a dozen different
companies. Yes. So when you, our listener, buy
a true private label product at a supermarket.
You are buying an item where the retailer acted
as the architect. The grocery store determined
the exact amount of sodium. The specific flour
blend. The exact packaging dimensions to fit
perfectly on their specific shelves. And the
manufacturer is just the builder executing that
blueprint. But that architect -builder dynamic
raises an obvious question about the infrastructure
required to pull this off. Right. If the retailer
is just drawing up the blueprints, who is actually
swinging the hammers and running the assembly
lines? The natural assumption is that all of
this is outsourced to anonymous third parties
overseas. Or hidden away in massive industrial
parks. But it turns out retailers actually own
hidden manufacturing empires of their own. Which
is wild if you look at the internal data from
the Kroger company back in 2018. Yeah, it showed
that while 60 % of their private label products
are outsourced, the remaining 40 % is manufactured
entirely in -house. And 40 % of a massive national
grocery chain's inventory represents a staggering
amount of physical infrastructure. It's a logistical
empire. In 2018, Kroger internally owned 38 manufacturing
plants strategically spread across the U .S.
We're talking about 19 dairy farms, 10 bakeries
and two butcheries, all owned by the grocery
store. Safeway operated similarly. Back in 2012,
they owned 32 of their own plants. These companies
aren't just managing retail storefronts. They
are industrial manufacturing powerhouses. The
logistical advantage and the profit margins this
gives them over a purely outsourced competitor
are just massive. Because owning the supply chain
allows them to control costs down to the penny.
But we also have to look at that other 60%. The
outsourced portion. Right. This is where the
veil of secrecy is incredibly thick. Retailers
fiercely protect the identity of their suppliers.
Using incredibly strict non -disclosure agreements.
Yes, NDAs. The anonymity isn't just a byproduct
of complex global supply chains. It is a legally
enforced feature of the system. But if retailers
use strict NDAs, how do we actually know who
is making the store brand? Well, sometimes the
curtain slips. And here's where it gets really
interesting. Because when that curtain slips,
we find out that private label brands are frequently
produced by the exact same company that manufactures
the premium national brand. Kimberly -Clark is
a perfect example of this. They're the massive
corporation behind premium Huggies diapers. But
they also manufacture a budget private label
version of diapers specifically for Walmart.
What's fascinating here is the sheer spectrum
of these co -manufacturing arrangements. It is
tempting to think of this as a uniform practice,
but it's highly variable. In some instances,
the store brand item and the name brand counterpart
are functionally identical. Wait, really? Like
the exact same product? Rolling off the exact
same assembly line, they're only separated at
the very end to be placed into different packaging
with vastly different price tags. So in those
cases, it is literally just legalized deception.
You are paying purely for the cardboard box and
the marketing budget of the premium brand. It's
market segmentation. But yes, in those specific
cases, the physical product is identical. Wow.
However, more often, a single manufacturer is
holding multiple distinct formulas under one
roof. So they run the assembly line for the private
label version using one set of ingredients or
one method requested by the retailer. And then
they retool the line to produce the national
label version using a completely different recipe.
Which makes more economic sense. They can capture
different consumer demographics at different
price points without having to build a second
factory. Exactly. But because of the NDAs, the
public is completely in the dark. We usually
only find out about these massive co -manufacturing
operations when something goes critically wrong.
Like in 2007, we actually saw the veil lift on
this entire industry during a massive recall
of contaminated pet food. It was a severe crisis.
It was. But structurally, it accidentally exposed
a closely guarded industry secret. It revealed
that more than 100 different brands of pet food,
spanning both highly expensive premium labels
and cheap private label store brands. We're all
being produced by a single company, MenuFu Zinc,
up in Canada. Over a hundred distinct brands
coming out of one facility. That is the illusion
of choice in a nutshell. You walk down the pet
food aisle, you are presented with 50 different
bags, 50 different emotional marketing pitches
about canine vitality and ancestral diets. And
it turns out they all rolled off the same loading
dock in Ontario. To be fair to the process, the
ingredients and recipes did differ substantially
among those brands based on what the various
clients specified. Yes, but the recall proved
unequivocally that the supposed bitter rivalry
between premium name brands and budget store
brands is often being staged on the exact same
factory floor. The manufacturer is essentially
playing both sides of the chessboard. Though
there are a few rare exceptions where the retailer
actually wants you to know. Exactly who made
the product. It's almost like a rare public flex.
Look at Costco. Ah, yes. On bags of their Kirkland
Signature coffee, they proudly print the words,
custom roasted by Starbucks, right on the front
of the packaging. They are intentionally borrowing
the established brand equity of Starbucks to
elevate the perceived value of their own private
label. It's a brilliant strategic move. It is,
but it's very much the exception to the historical
rule. Store brands haven't always had the leverage
or the consumer trust to pull that off. If we
look back, the trajectory of private labels has
been a bit of a roller coaster. They actually
emerged in the 19th century, focusing on delivering
decent quality at a slightly lower price point.
But then they hit a wall. In the early 20th century,
there was this massive race to the bottom. Store
brands decided that aggressively competing on
rock bottom prices was the only strategy that
mattered. Consequently, the quality of private
brands tanked. The standards dropped significantly
as they tried to undercut the national brands
at all costs. It took decades for that trend
to reverse. It wasn't until the second half of
the 20th century that quality control and visual
presentation started to recover. But to really
understand the psychology of today's consumer,
we have to talk about a very specific cultural
phenomenon that began around 1977. The generic
era. It's such a visually striking piece of retail
history. In 1977, these generic products swept
in and rapidly won market share away from both
the established national brands and the private
label store brands. They were literally products
without brand names. You would walk into a store
and see shelves stocked with stark, incredibly
plain packaging. Simple white boxes or cans with
basic black text that simply stated the contents.
Cola. Batteries. There were no mascots, no slogans,
no lifestyle marketing, just the bare minimum
viable product. Sold at prices significantly
below both national and private brands. It feels
surreal to picture that now. Just a plain white
can of cola. Right. But if they were so much
cheaper, why didn't they completely take over
the market permanently? Because the consumer
perception of those products shifted dramatically.
Over time, generic morphed into a pejorative.
It became an insult. Consumers began to associate
that stark packaging with blandness, cheapness,
and inferior quality. The lack of branding actually
created a negative brand identity. Retailers
recognized that stigma was dragging down their
profit margins. So by the 1990s, they executed
a hard pivot into premiumization. They realized
that they controlled the most valuable real estate
in the industry. the store shelf. Right. They
began heavily investing in the quality and the
branding of their private labels to directly
challenge the established heritage brands. They
introduced high end premium private labels that
rivaled or exceeded the quality of the name brands.
And they pushed it hard. By 2024, a survey conducted
by the UK's groceries code adjudicator found
that retailers were introducing and prioritizing
their own label products so aggressively that
it was actually creating massive management complexities
for the suppliers. The retailers were using their
control of the shelf space to squeeze out the
very brands that used to dominate those aisles.
But in their desperation to shake off that cheap
1970s generic stigma and compete with premium
products, some retailers crossed the line into
outright marketing deception. Yeah, we saw a
major controversy erupt in the United Kingdom
regarding fake farm private labels. The supermarket
giant Tesco was at the center of this. Supermarkets
faced intense criticism and even legal threats
from real agricultural unions for utilizing completely
fictitious farm names on their private label
food packaging. They invented imaginary rustic
sounding farms to imply a premium, wholesome
farm to table origin that simply did not exist.
The meat might have come from a massive industrial
operation, but the packaging suggested it came
from a quite local farmer. It was a calculated
psychological play to distance their store brands
from the clinical feel of older generic products.
It highlights how much branding dictates our
baseline perception of taste and quality. We
trust the rustic font before we ever taste the
actual food. But this private label model isn't
confined to the grocery aisle. It dictates almost
every consumer interaction we have. Think about
the fast food industry. Oh, absolutely. When
you pull up to a drive -thru, the core items
you are buying, the proprietary burgers, the
specific cut of fries, the chicken nugget. Those
are essentially the restaurant's private label.
And yet they sit comfortably. right next to national
name brands on the exact same menu board. Right.
You purchase the restaurant's private label burger,
but you pair it with a national brand soft drink,
like Coca -Cola or Pepsi. Or consider the dessert
menu. You might order a proprietary fast food
ice cream base that is co -branded and mixed
with a highly protected national brand like Oreo
or M &M's. It is a seamless, highly negotiated
blending of private and national labels designed
to maximize your comfort and spending. But the
deepest dive here actually takes us straight
into your wallet. The world of consumer finance
operates on this exact same architecture. We
are talking about... Private label credit cards,
or PLCCs. Most of us just call them store cards.
If we connect this to the bigger picture, applying
the private label concept to financial services
is incredibly lucrative for everyone involved.
Here is the underlying mechanic of a private
label credit card. The retailer, whether that's
Target, Walmart, or Amazon, partners with a major
bank. The bank is the entity doing the actual
financial heavy lifting. They issue the cards,
they underwrite the credit lines, they manage
the risk, and they handle the collections. But
when you hold that physical plastic card in your
hand, you don't see the bank's name. You see
the store's branding. Exactly. It's the Target
Circle card, but the machinery behind it is run
by TD Bank. You use a Walmart reward card, but
you're actually borrowing money from Capital
One. You swipe an Amazon store card, but the
entity extending you credit is Synchrony Bank.
The bank stays entirely behind the scenes, effectively
acting as the white label manufacturer of the
financial product. Furthermore, these PLCCs typically
do not carry the logo of a major payment network
on the front, like Visa or MasterCard. And there's
a critical functional distinction here that often
confuses consumers. A true private label credit
card is what the industry calls a closed loop
card. Meaning it can only be used at that specific
retailer or its direct affiliates. You cannot
take your private label Amazon store card and
use it to pay for dinner at a local restaurant.
Which is very different from a co -branded credit
card. Right. Co -branded cards are open loop.
They feature the payment network logo, like Visa,
and function like traditional credit cards. You
can use them anywhere that network is accepted.
Nordstrom is a great example of a retailer playing
both sides of this strategy. They offer a Nordstrom
store card, the private label version restricted
only to their stores. But they also offer a Nordstrom
credit card. which is co -branded, operates on
the Visa network, and can be used globally. In
both instances, the actual credit is being issued
and managed by TD Bank. The strategy is brilliant.
The store gets to slap their friendly, trusted
logo on the front of a financial instrument,
building immense brand loyalty, capturing massive
amounts of consumer data, and avoiding expensive
interchange fees. Meanwhile, a massive third
-party institution handles all the complex regulatory
and financial machinery in the back. It is the
exact same concept as the grocery store aisle,
just applied to consumer debt. So what does this
all mean? We have covered a lot of ground today.
We really have. We started by reevaluating our
choices in the grocery aisle, realizing that
the bitter rivalry between the premium heritage
brand and the cheaper store brand is often a
carefully managed illusion. Manufactured by the
exact same company using NDAs to keep us in the
dark. We tracked the roller coaster evolution
of these products from those stark black and
white generic boxes in 1977 to the premiumization
era where supermarkets used fictitious farm names
to manipulate our psychology. And finally, we
saw how that exact same private label architecture
extends into the financial infrastructure sitting
in our wallets. Ultimately, it reinforces a core
truth about navigating today's marketplace. Critical
thinking is absolutely essential in a world of
information. But knowing how the underlying machinery
actually works empowers you. When you understand
that a private label product is, at its core,
just a set of specifications executed by a third
-party builder, you can start making smarter
purchasing decisions. You begin to evaluate products
based on actual ingredients, material quality,
and technical specs. Rather than outsourcing
your trust to the emotional appeal of the packaging
or a rustic -sounding farm name. And I want to
leave you with one final provocative thought.
There was a tiny but massive detail right at
the very beginning of our source material that
we haven't touched on yet. The operational definition
of a private label. Right. It notes that while
the term usually describes physical products,
it can also encompass services. Think about the
implications of that for a second. We are entirely
accustomed to buying a private label box of cereal
or swiping a store -branded credit card. But
if this architect -builder model is so wildly
successful and profitable for massive retail
corporations... What happens when they aggressively
start private labeling services? What does the
world look like when your local mega -mart introduces
a store -brand doctor's visit? A store -brand
legal defense. Or a store -brand college degree,
all fulfilled by anonymous third -party contractors
hidden behind an NDA. And more importantly...
Would you buy it? Something to chew on next time
you are standing in the checkout lane. Thanks
for joining us on this deep dive.