GMAT Practice Test 10

The Purpose of Store Brands

¹For much of the twentieth century, grocery retailers' own store brands were regarded, by manufacturers and shoppers alike, as low-priced imitations meant for customers who could not afford national brands. Analysts accordingly assumed that store brands would gain market share during recessions and lose it when household incomes recovered. The pattern has not held: in many markets, store brands have kept much of the share they gained during downturns, and some retailers now sell premium store-brand lines priced above the national brands they once imitated.

²One group of marketing scholars argues that the persistence of store brands reflects a change in their purpose. Retailers, they contend, value store brands less for the margins they earn directly than for the leverage they provide in negotiations with manufacturers. A retailer that can credibly threaten to give a manufacturer's shelf space to a comparable product of its own is in a stronger position to demand lower wholesale prices and promotional payments. On this view, a store brand can be worth carrying even if it sells only modestly, since much of its value lies in the concessions it extracts on the national brands sitting beside it. The scholars note that retailers' store-brand assortments tend to be widest in categories dominated by a small number of manufacturers, precisely where a credible alternative would most strengthen a retailer's hand.