Should manufacturers see private labels as a source of new revenue or should they always avoid getting involved with private labels?
Private-label brands now account for one of every five items sold in U.S. supermarkets, drug chains, and mass merchandisers. A controversial move by some marketers of major brands is to supply private-label makers. For example, Ralston-Purina, Borden, ConAgra, and Heinz have all admitted to supplying products – sometimes lower in quality – to be used for private labels. Other marketers criticize this strategy, maintaining that these actions, if revealed, may create confusion or even reinforce a perception by consumers that all brands in a category are essentially the same. Choose a side, arguing that manufacturers should feel free to see private labels as a source of new revenue or that national manufacturers should never get involved with private labels.
From an ethical point of view, I see no problem with this. As long as the major labels are adhering to rules about food quality and safety, there is no problem with this. There does not seem to me to be any ethical reason that a company should always sell its product under its own label.
From the point of view of profits and the health of the industry as a whole, there is a bigger problem, but not one that I think is that serious. It is true that people might come to see all brands as essentially the same. If this happened, people would stop paying premium prices for brand name goods. Clearly, however, the major labels are not worried about this and it is their brands that would be diluted by these practices. It seems more likely that consumers will simply not remember the issue of private labels and will instead continue to perceive value in the "name brand" goods.