Question: Why do retailers like Walmart, Target, Amazon, Tesco, retail their own branded products? These “private brands”, as they are known, are subject to the same regulatory mechanisms as other big name-brand products.
Answer: Because the profit margins on private brands are much higher than manufacturer brands — 40% on average.

Welcome to Costs Matter, a series that asks different questions all of which have the same answer: to better manage costs. The costs are frequently economic though not always. The series focuses narrowly on the impact of costs. It does not claim these costs are the sole cause. To read more in the series, visit https://medium.com/galileo-onwards/costs/home.

Citing from a Jul, 2009 article on storebrandsdecisions.com (link now defunct, available on the WayBack Machine), we have “retail gross margins are higher on store-branded products (35 percent) versus comparable nationally advertised brands (25.9 percent).” That’s approximately a 40% increase in profits.

The same conclusion is also arrived at by the following article, coincidentally, also from 2009. It says:

Private labels matter for several reasons, the most important of which is their higher margins. For retailers, gross margins on private labels are, on average, 25% to 30% higher than on those of manufacturer brands. In consumer products especially, retailers’ margins on national brands are in the 12% to 17% range, which is not enough to offset the cost of modern trade overhead. With a house brand, the margin can be upward of 40%….
The introduction of a store label also gives the retailer greater leverage with manufacturer margins and an increased ability to ride out business cycles, because the retailer has more leeway in pricing, marketing strategies and long-term planning. [ref: knowledge.wharton.upenn.edu]

It’s always good to remember that in business, costs always matter.

One can see this as the counterpoint to why a video streaming company like Netflix produces its own content. To read that discussion, head over to https://medium.com/galileo-onwards/netflix-93562edd0bc9.

Image generated with figlet and some custom artwork. License: public domain.