The House (Brand) That Didn’t Collapse
In 1986, it was thought that house brands was a fad.
But easy as they are to spot, generics – bargain-priced merchandise sold without a brand name or, for the most part, advertising – are becoming harder to find.
Introduced in the mid-1970’s when inflation was high, the no-name products grew in popularity for a few years. But since 1983, their sales have steadily declined – almost to the point of extinction today in many supermarkets. Among the reasons, say analysts, are an improved economy, more price-cutting promotions by brand-name products and persistent consumer doubts about the quality of generic items.
”Generics are a much less important category than they were a few years ago,” said Michael Rourke, a vice president at the Great Atlantic and Pacific Tea Company. ”The consumer has lost interest.”
So, for the most part, have retailers. A.&P., for example, has reduced the number of different generic products it carries to less than 100 from twice that number several years ago. At the same time, it has put an increased emphasis on selling national brands. Generic products, after all, carry razor-thin markups – sometimes just a penny or two per item.
What’s really interesting is when house brands are not only competitive with name brands, but actually better. Safeway has outstanding provolone cheese for some reason. Walmart has good salsa (I know, right?). Kroger has a Mountain Dew clone, Citrus Drop, that I often prefer to Mountain Dew. Food Lion has outstanding sliced meats (packaged stuff, not deli).
Safeway definitely has some good generics. Back in the high inflation 1970s, supermarkets got big into generics, but the products were often not that good. The newer products are quite good, as good as the brand name ones.
One possible explanation is that the mainstream companies have been outsourcing their expertise. Why hire aluminum foil workers and exploit them when you can subcontract the production and exploitation and reap higher profits? How many branded products are actually made by brand name producers?
By decoupling the branding, marketing and promotion from the manufacturing, it is much easier to create your own high quality brand. Take a product like olive oil. In the old days, there was Amalgamated Olive Oil which owned acres of olive trees, hired people to prune trees and pick olives, the ran an olive oil press and bottling plant. If you wanted to sell olive oil, you had to duplicate all that, but then some clever MBA at Amalgamated decided the company would make more money if they just leaned on farmers for exclusive contracts to produce olive for them and crush them if they got out of line. Then they’d subcontract with ten olive press and bottling companies and make them compete for a share of Amalgamated’s business. With ten of them, they could squeeze them harder than one has to squeeze an olive to get oil.
When Safeway wants to produce olive oil, they don’t talk to Amalgamated.They talk to those squeezed farmers who are more than glad to have a second customer, even if they have to restructure a bit to hide the deal. The olive trees don’t have to know a thing. Similarly the pressers and bottlers are more than glad to have a customer who might offer an extra half penny or accept production on a different schedule. Safeway’s O Organic olive oil is good olive, and their California branded version of it is up there with some of the best American olive oils I’ve tasted.
Of course, Safeway has to deal with Amalgamated, so Amalgamated gets the top shelf and the end cap, and Safeway never undercuts them too deeply or directly.
In some ways, I’m not fond of this trend. Companies really should have some expertise besides being able to write tight legal contracts, bribe lawmakers to legalize dubious practices and jerk people who actually make stuff around. Now and then some company gets caught out this way. Look at Boeing and the 787. Look at all those manufacturer’s who farmed things out to China and never read a page of Friedrich List.
On the other hand, it does create openings for little guys. If you can design an interesting product, you can farm out production to someone who actually knows how to produce things. Bunnie Huang has created his own brand doing this. He even has a spiral bound cheat sheet for negotiating for electronic components in Shenzen. How do you say 500 microfarad electrolytic capacitor in Mandarin anyway?Report
This is a great comment, Kaleberg.Report
I reckon that I’m going to give the house brands a shot.Report