Are Private Labels Actually Generic?

Shopping private labels is one of the easiest ways to save money at the grocery store — especially in today's economy where inflation has hit food prices hard.

In the past, buying a store's "knock-off" private label product might have been looked down upon. However, as prices are on the rise and stores like Aldi and Trader Joe's, whose whole mission is to sell private-label products at affordable prices, have become more popular, private-label purchases have steadily increased.

Today, not only is it economical to buy your snacks at Trader Joe's, but it's also the hip thing to do.

But have you ever been wandering through the grocery aisle at your favorite store and noticed the store's private-label item looks remarkably similar to the name-brand item on the shelf next to it? Or have you purchased a private-label product, tried it, and realized that it tastes nearly identical to the name-brand product that's almost double the price?

This has us wondering, are those private-label products actually as generic as we're led to believe, or is this one of the best-kept grocery store secrets we're missing out on? We asked the experts.

What Is a Private Label?

First things first, what the heck is a private label? Simply put, it's the brand that's owned by the retailer. Private-label products are labeled under the retailer's private label name rather than the company that manufactures them.

For example, Aldi's private label is Specially Selected, Walmart's private label is Great Value, Costco's private label is Kirkland Signature, Sam's Club's private label is Member's Mark, and Trader Joe's private label is Trader Joe's. Target has a few food-specific private labels including Market Pantry, Good & Gather, and Favorite Day.

Basically, every food store you shop at has a private label. And most of the time, private-label products are cheaper than their name-brand counterpart.

"Typically in grocery stores, the average price is about 20% less," says Rajeev Batra, Ph.D., a marketing professor at the University of Michigan.

Now, the part that's slightly mindblowing is that most private-label products are manufactured by the same companies that manufacture the national name-brand products.

Yes, we're saying that the reason a lot of private-label products look and taste the same as name-brand products is that they likely are the same or extremely close.

Are Private Label Products Actually Generic?

The short answer is we can't be certain, but likely no. What we do know is that most name-brand manufacturers also manufacture private-label products.

"There are certainly some cases where a retailer might have their own manufacturing contracts or private label [manufacturer]. It's certainly possible, but that's less likely," says Batra. "It's much more likely that they're getting it from a national manufacturer."

So, why in the world would a national manufacturer supply a company with a competing private-label product? "If this manufacturer didn't supply [it], somebody else would," Batra explains.

The stores have more power than you think.

"Imagine you're supplying to Walmart. Walmart tells a company 'hey, we're going to stock your stuff on our shelves, but we also want you to give us private label supplies.' It's unlikely that the company has the power to say no to Walmart," says Batra. "To keep your retail customers happy, the companies often agree and say 'yes, we'll give you some private label.'"

However, to ensure that the products aren't identical, the national manufacturer has the power to change the formulation in some way. Meaning the private-label product could have a different ingredient or dye. We're not exactly sure if manufacturers do this because you can't necessarily prove it.

"For a food product, it wouldn't really need to be changed at all. You can't look at Del Monte green beans in another label and go 'I know who's making this,'" says Fred Feinberg, Ph.D., the chair of marketing at the University of Michigan. "I don't know how you would ever verify that two products were not produced by the same manufacturer."

The Bottom Line

While we can speculate all day that your favorite private-label Irish butter or potato chip is produced by the same national manufacturer, we'll never actually know for sure. That's because if that information ever became public knowledge, it would be bad for both the national brand and the private label retailer.

On the manufacturing side, it's all about consumer trust and keeping the name-brand products top-of-mind.

"If consumers found out that you can get the same stuff for cheaper on the retailer's brand name, why would you want to buy the national brand name? You would just go for the cheaper price on the same thing. So that's why it's it's kept secret," says Batra.

On the retailer side, it's all about manufacturer trust. If a store lets it slip that they sell the same or similar products, the manufacturer might pull out and refuse to make the private label products for them. Not to mention, it could turn into a legal issue.

However, Batra explains a second reason stores might want to stay tight-lipped about who makes its products.

"A retailer can switch the manufacturer — it may want the flexibility that today we'll get it from company X and tomorrow we'll switch to company Y," he says.

All we know is if you've been buying private labels this entire time, you're definitely on to something, and if you haven't been, you might want to start now.