Should National Brand Manufacturers Enter the Intensely Competitive Private Label Business?

As national brand manufacturers navigate the private label landscape, our research will help them decide whether they should get into this intensely competitive business. It will also help them build competitive intelligence into the private label decisions of their channel counterparts and competitors.

From: Yu Ma, Kusum L. Ailawadi, Mercedes Martos-Partal, and Óscar González-Benito, “Dual Branding by National Brand Manufacturers: Drivers and Outcomes,” Journal of Marketing.

In sum, while supplying private labels can be a strategic move, it is not a cure-all for struggling national brands. Shelf space is a valuable resource for grocery retailers, most of whose business is still in physical stores. No retailer will continue to expand shelf space for a brand that lacks sufficient consumer demand.

Lessons for Manufacturers

Some national brand manufacturers also produce private labels, and with such growth, the practice is likely to become even more commonplace. However, this phenomenon has been largely unexplored because the supply of private labels—and to whom they are supplied—is a well-kept secret.

As a result, shoppers are moving away from large national brands toward private labels. According to a survey by The Food Industry Association, 40% of shoppers said they have purchased more private labels since 2020, with 30% of these shoppers citing higher grocery prices as the reason.

On the flip side, despite the increase in relative distribution depth, we find no corresponding boost in the relative share of dual branders’ national brands at the retailer. This may seem odd, but it is important to remember that increasing distribution depth is under the control of the retailer, but an increase in sales is up to consumers.

In a new Journal of Marketing study, we explore the complex trade-offs involved in dual branding, that is, the supply of private label products by manufacturers of national brands. We identify private label suppliers to six of the largest grocery retailers in Spain across over 260 product categories and combine that information with purchase data from a national household panel. Armed with this unique dataset, we explore the factors that drive dual branding and what effect it has on the national brands of dual branders.

Óscar González-Benito is Professor of Marketing, Universidad de Salamanca, Spain.


Yu Ma is Associate Professor of Marketing, McGill University, Canada.

Private label supply is not limited to fringe national brand manufacturers; the strongest driver of private label supply is manufacturers with a large national brand business. Manufacturers of premium and innovative national brands supply private labels, especially to a retailer whose private label is not heavily discounted. Also, the more a manufacturer depends on a retailer for its national brand revenue—and the more intense the competition it faces on that retailer’s shelf—the more likely it is to supply the retailer’s private label. In other words, manufacturers see private label supply as a way to exploit scale and try to gain influence with retailers to benefit their national brands.

Our study offers two important lessons for manufacturers:

  1. Manufacturers should supply private labels if they can succeed in that business as efficient and flexible producers at scale. Those with weak national brands may be better off migrating completely into private label production.
  2. Manufacturers that are considering supplying private labels in periods of excess capacity should look before they leap. They may assume they can get out of the private label business whenever they want, but terminating an arrangement with a retailer hurts their national brand distribution depth as much as starting one benefits it.

Go to the Journal of Marketing

Does this quest for influence actually work out? The answer, according to our study, is yes—with qualifiers. First, our research reveals that when a manufacturer starts supplying private labels to a retailer, its national brands enjoy a significant increase in relative distribution depth at that retailer. More items belonging to the brand are stocked, increasing its visibility at the point of purchase. This boost is even more pronounced for manufacturers that previously experienced declining distribution depth and faced higher competitive intensity. In effect, supplying private labels benefits national brands.

A 2023 report by the consumer research company Attest found that 89.4% of adults in the U.S. are currently either “very likely” or “somewhat likely” to shop around for the best deals on food and beverage products. In another 2023 survey from Attest, 71% of consumers said they were likely to switch food and beverage brands to save money, and 80% believed brands conveniently cite inflation to justify price hikes.

Kusum L. Ailawadi is Charles Jordan 1911 TU’12 Professor of Marketing, Dartmouth College, USA.

Mercedes Martos-Partal is Professor of Marketing, Universidad de Salamanca, Spain.

Read the Full Study for Complete Details

We find that more than 70% of private label suppliers to these retailers supply both national and private label brands. In the majority of cases, dual branders supply private labels in categories where they have their own national brands; however, almost a third of the time, their private label categories are closely related to, but not the same as, the categories in which they have national brands. For example, consider a private label in beauty creams and a national brand in body milk. Or a private label in toast sticks and a national brand in cookies.

How Does Supplying Private Labels Help (or Hurt) National Brand Manufacturers?