Definition
A private label (PB) product is a store-brand item that a retailer plans and develops itself, then sells under its own name. It skips the many middle steps between the factory and your shopping cart, and it skips the big advertising bills, so it can be priced much lower than a regular brand.
Why is it so much cheaper than a name brand?
Walk down the snack aisle. Next to a famous brand's potato chips, you'll often find a big bag with the store's logo on it, at a lower price. The potatoes are the same. So why is the price so different?
A regular brand pays for big TV ad campaigns. Its products also pass through wholesalers and distributors, and each step adds a cost. A PB product goes straight onto the shelves of a store where customers already shop every day. So it skips almost all of the advertising costs and middle distribution steps.
There is more. The retailer plans to sell in huge volume across hundreds of stores at once. That lets it cut the cost sharply when it signs a deal with a factory. The costs that puffed up the price like foam along the way are gone, and that is how the friendly price tag comes about.
Does the store build its own factory?
It's easy to imagine that a big supermarket or convenience store builds its own factory to bottle drinks and bake snacks. But most PB products are made by specialist factories that already have great equipment and know-how.
For example, the store asks a skilled factory that supplies a famous drink, "Please make a sparkling water with this taste and these ingredients, and put our store's label on it." The retailer focuses on planning, reading what customers like. The specialist factory handles production. This is called original equipment manufacturing (OEM), where a maker produces goods under another company's brand.
The factory can receive large orders through the store's nationwide network. But because its sales channel is tied to a single retailer, it tends to be the weaker side when the terms of the deal are set.
To be more precise: beyond just being cheap
To be more precise, today's PB products are not just "cheap things you pick when money is tight." Retailers these days are actively growing PB into exclusive, one-of-a-kind products you can't buy anywhere else.
Some shoppers really do travel a long way just to try a jumbo cup of instant noodles or a dessert sold only at one particular convenience store. PB is also moving fast into premium territory, such as upscale meal kits made with famous restaurant chefs and good-quality small appliances.
Still, there are problems that need steady correction for the market to grow in a healthy way. A big retailer with strong power over its stores may push supplier factories to cut their prices unreasonably. It may also copy a small company's popular idea outright.
Common misconceptions
PB products are cheap, so they must be sloppily made with low-grade ingredients.
Specialist manufacturers make them to the quality standards the retailer sets. The main reason for the low price is that middle distribution costs and big advertising spending are cut out. That said, the ingredients or specifications may differ from the brand-name product, depending on the item.
Retailers build their own dedicated factories to produce PB products.
It is common for the retailer to provide the planning and the sales network, and to hand the actual production to a skilled mid-size or small specialist factory (OEM).
Where you meet it
A big supermarket teams up with a snack factory to launch half-price jumbo potato chips and bundled bottled water
Jumbo-size instant noodle cups and good-value coffee beans sold only at a convenience store
Large packs of toilet paper and wet wipes that an e-commerce company plans under its own brand and ships directly to you
In one sentence
A PB product is a store-brand item that the retailer plans and a specialist factory makes, cutting out middle distribution costs and advertising costs.