Private label goods, also known as store brands, own brands or "generics" have recently become very popular. Zero advertising expenses, low packaging costs and low manufacturing costs have enabled private label merchants to keep prices significantly lower than name-brands. However, the general perception is that is that of low quality, which made them appeal mostly to price sensitive people, leaving the name-brands to high WTP, risk averse consumers who value high quality and tested brands.

The recession has since changed the picture. No longer do private labels appeal only to those who cannot afford the name-brands, consumers unsure of their next paycheck are now willing to try out the goods. Large retailers like Walmart quickly took advantage of this opportunity, increasing the visibility of its Great Value brand and re-branding from a dull blue/red combo to an attractive white. It also increased the number of products in its product line - from Granola bars and Ready-to-eat cereal, to body lotion and medicated shampoo - it stocked everything with a margin it could squeeze its products into.This brought about a new worry for food and cosmetics manufacturers. In the refrigerated foods industry, private label accounted for 30% of total sales. The retailers who were supposed to help them sell their goods were stealing their sales and were fast becoming a nightmare. Procter & Gamble responded to this threat by buying a retail chain to improve its contact with consumers. (Read more in this Reuters article)

Now the recession is dwindling, albeit slowly, but will people return to buying name-brand goods as much as they did before the recession? Sam Reeds, CEO of Treehouse foods does not think so. He recently announced that his company hopes to make more acquisitions in the private label arena as he believes the growth in private label goods will continue to increase - recession or no recession.  Maybe one unique advantage private labels have is that unlike name-brands who have to deal with competition from new entrants, there is usually only one private label in each store. Thus, they can carve out their niche monopolies as long they can keep costs low enough to undercut the prices of the name-brands. Private labels are also finding their ways to smaller stores. In Mexico's Federal District (Distrito Federal) for instance, you can find Walmart's Great Value brands in small stores and gas stations. My colleague Sean Senhouse recently wrote a detailed article on the Pricing Connection about private label pricing in which he describes among other things how other stores besides food and cosmetics are starting to create their own private labels.

It's obvious that private label goods are here to stay, and it has been predicted that their sales will soon surpass that of name brands. (See the last paragraph in this Washington Post article) The question is if this happens, will private labels now no longer be able to piggy-back off the name brands? Will they eventually start to have similar costs to the name-brands? If this happens, eventually, they will no longer be seen as private labels but just as another brand in the bunch. What happens next? A new set of private labels piggy backing on the current private labels? Only time will tell.