How are supermarkets able to make so many store-brand items?

Question

Have you ever noticed that supermarkets have a store-name copycat of EVERTYTHING that they sell?
You can buy Kellog's "Pop-Tarts" or Shop-Rite "Toaster Pops".
You can buy JIFFY peanut butter or Foodtown peanut spread.
You can buy Heinz Catsup or Stop n' Shop ketchup.

See what I mean?

So here's my questions:

One) How can supermarkets make EVERYTHING, when name-brands can only make a few things? In other words, where are they hiding all the Foodtown factories? There should be dozens of them all over the place to make all the different products.

Two) If supermarkets can produce so many things, why not open stores that JUST sell their own items instead of giving the customer a choice? Wouldn't this mean 100% profit on their part?

Anyone know how this stuff works?

Answer 1

This is kind of a long answer:
First, most of the products made for stores are NOT made by the same people who make the name brand products. Some are, but, for example in pain relief products there are a few makers of store brand/generic drugs who match the specs of name brand companies (in most cases) and will put any store's label on the product.

For food products, there are many, sometimes fairly small, companies called "co-packers" who can take the specifications of brand name products and make "close-enough" knock offs for stores. So supermarkets can make so many products because they don't really make any of them- so FoodTown doesn't own a single factory. And since many supermarket chains may buy from the same co-packer, these co-packers can be extremely successful while not requiring a huge investment by any one supermarket chain (i.e if 10 companies buy for the same supplier the cost per supermarket is pretty minimal). So they can get what they want, and get it cheaply.

Also, keep in mind that store brands are usually "fast followers." They tend to knock off the top-1 or -2 brands. As a result, these supermarkets know that what they are going to make will sell- it's as good as the brand name, but half the price of the already successful item. So supermarkets can afford to be in virtually every category since they tend not to "build" or start any categories- they just shift consumers to their brands from the name brands.

To your second question, while in many cases store brand products sell very well, there is still a lot of power in brand name products. Stores recognize this and so keep a good mix on hand. Even if Wal-Mart laundry detergent is great, there are generations of people who trust Tide and will pay more for it- so keep that on the shelf, too. What you will see, however, is that the number of brand names will drop in many stores, giving you just 1-2 choices where you might have had 4-5 years ago- the slow-moving brands fall by the wayside to open up shelf-space.

Branded companies also are a great source of money for supermarkets as they pay significant fees to FoodTown to 1) get the product on shelf; 2) promote the product; 3) demo the product in-store. And they provide category and consumer information to the supermarkets that would cost them a lot of money to get on their own.

Finally, if you are familiar with stores like Trader Joe's you will see a store that is much more heavily store-brand/private label driven. They have much fewer branded products and instead use their reputation as a wholesome, quality company to sell their own version of many products with no name brand products next to them. But they also tend to have more unique products. Whole Foods also has a lot of store brand products (365 brand) where name brand products may not exist.

Answer 2

It's called an OEM or private label. The markets ask various manufacturing companies to put their label on the box, can, jar, etc. So Ralph's brand peanut butter is probably made by the same people and in the same factory that produces Jiff or Skippy.

Answer 3

Most stores contract out the production to the same people who make the products for the major brands. Copyright restrictions limit how they market their brand using similar names, colors, etc.

The reasons they don't sell only their own products is that consumers don't want generic products. They have some level of brand awareness or loyalty.