United States

Department of

Agriculture

Economic

Research

Service

Economic

Research

Report

Number 129

December 2011

Richard Volpe

The Relationship Between 

National Brand and Private 

Label Food Products

Prices, Promotions, Recessions, 

and Recoveries
www.ers.usda.gov

Visit Our Website To Learn More!

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its 

programs and activities on the basis of race, color, national origin, age, 

disability, and, where applicable, sex, marital status, familial status, parental 

status, religion, sexual orientation, genetic information, political beliefs, reprisal, 

or because all or a part of an individual’s income is derived from any public 

assistance program. (Not all prohibited bases apply to all programs.) Persons 

with disabilities who require alternative means for communication of program 

information (Braille, large print, audiotape, etc.) should contact USDA’s 

TARGET Center at (202) 720-2600 (voice and TDD). 

To file a complaint of discrimination write to USDA, Director, Office of Civil 

Rights, 1400 Independence Avenue, S.W., Washington, D.C. 20250-9410 or 

call (800) 795-3272 (voice) or (202) 720-6382 (TDD). USDA is an equal 

opportunity provider and employer.

Cover photo credit: Thinkstock.

 

http://www.ers.usda.gov/

Find additional information : 

Use of commercial and trade names does not imply approval or 

constitute endorsement by USDA.

Recommended citation format for this publication:

Volpe, Richard. The Relationship Between National Brand and Private 

Label Food Products: Prices, Promotions, Recessions, and Recoveries 

ERR-129, U.S. Department of Agriculture, Economic Research Service. 

December 2011.
United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

Over the past two decades, private label food products have grown steadily in sales and 

often directly compete for market share with national brands. This competition lowers 

prices and increases product choices for consumers. This report analyzes the relationship 

between private label and national brand product prices and in-store promotions for two 

major U.S. grocery store chains during the 2007-2009 recession and the year following 

the recession (2010). Retailers promote private label products (offer price discounts) strategically in response to national brand pricing promotions to protect private label market 

share during national brand promotions. However, the extent of the retailer response 

varies widely across supermarket departments and is also affected by both the density 

of food stores and the market share of supercenters within a market area. These findings 

hold true regardless of the state of the economy, although the magnitude of the interaction 

between national brands and private labels differs in times of recession and recovery.

Keywords: retail food prices, supermarket pricing strategy, private labels, national 

brands, promotions, recession

Acknowledgments

The author thanks Richard Sexton, Rachael Goodhue, James Chalfant, Kathy Edgington, 

Jeff Goettsch, and Laurie Warren from the University of California, Davis. He also 

thanks colleagues Abebayehu Tegene, Ephraim Leibtag, Laurian Unnevehr, Elise Golan, 

and Rosanna Mentzer-Morrison from the Economic Research Service of USDA. He 

appreciates the reviews provided by Dermot J. Hayes, Alessandro Bonanno, and Patrick 

Canning, who provided suggestions that substantially improved this manuscript. Thanks 

are also due to Courtney Knauth for editing the manuscript and Victor B. Phillips for 

design and layout.

Richard Volpe, rvolpe@ers.usda.gov

The Relationship Between 

National Brand and Private Label 

Food Products

Prices, Promotions, Recessions, 

and Recoveries

Economic 

Research

Report 

Number 129

December 2011
ii

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Private Label Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Data and Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

National Brand/Private Label Price Differences . . . . . . . . . . . . . . . . . . . 6

Recession Versus Recovery Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Heavy Private Label Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Promotional Interaction Between National Brand 

 and Private Label Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Simultaneous NB/PL Promotions: Expected Versus Observed . . . . . . . 12

Modeling Promotional Interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Regression Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Examining the Entire Time Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Examining the Recession and Recovery Periods Separately . . . . . . . . . 21

Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
iii

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Summary

What Is the Issue?

One of the most striking changes in U.S. food retailing over the past two 

decades has been the rise of private labels (PLs), also known as store brands. 

Retailers have expanded PL product offerings across the supermarket, and 

PLs have increased in popularity, as measured by both dollar sales and shares 

within product categories. Since promotional competition between PLs and 

national brands (NBs) has the potential to benefit consumers through lower 

prices and expanded product choices, this report quantifies the magnitude and 

dynamics of PL price discounts and then tests for NB/PL strategic promotional interaction. Particular attention is paid to how the 2007-09 recession 

and subsequent recovery affected NB/PL interaction, showing how price 

dynamics evolved from recession to recovery.

What Did the Study Find?

Retailers promote private label products (offer price discounts) strategically in response to national brand pricing promotions to protect PL sales 

during NB promotions. However, the extent of the retailer response varies 

widely across supermarket departments and is also affected by both 

the density of food stores and the market share of supercenters within a 

market area.

• On average, PLs are priced about 23 percent lower than NBs, both with 

and without promotions. This gap is smaller than that found in previous 

analyses using older data, suggesting that these items may have become 

more comparable in price and quality over time. 

• NB/PL promotional interaction was strongest among processed, storable 

products, but much weaker for produce, fresh meat, and seafood. 

• In general, as market concentration increased within an area, the intensity 

of within-store NB/PL promotional interaction also increased. 

• NB/PL promotional interaction lessened, however, as the market share 

of supercenters increased, which may be due to supermarkets focusing 

on everyday low prices generally, rather than on promotions, when 

competing with supercenters.

• Promotional activity for NBs changed very little during the recession, 

while PL promotional activity increased.

How Was the Study Conducted?

This study used 2008-10 data on prices and promotions for two major 

supermarket chains that operate primarily in the Western United States. 

The data were gathered directly from the corporate web sites of the 

chains. The broad scope of the data, covering thousands of the products 

available in each supermarket and over 250 product categories in every 

major department, allowed for the study of NB/PL interaction across a 

wide range of product dimensions. The intrastore promotional interaction between NBs and PLs was analyzed using contingency tables and 
iv

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

then regression analysis was used to identify key determinants of NB/PL 

promotional timing. Because the time series included a part of the recent 

recession as well as the subsequent recovery, the analysis allowed for NB/

PL interaction to vary across these economic phases.
1

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Introduction

In studies of food retailing, private label foods (PLs) generate interest 

because of the ways in which they differ from national brands (NBs). NB 

products, regardless of the departments in which they are sold, travel from the 

farm gate to the consumer’s dinner plate by way of branded food manufacturers and distributors. For example, Heinz Ketchup is a homogenous product 

across every chain throughout the country in terms of taste and appearance. 

In contrast, supermarkets obtain PLs through a form of vertical coordination 

or from manufacturers specializing in private label products (Berges-Sennou 

et al., 2004). PLs are unique to the chains at which they are sold, or at least 

are so marketed. Nearly every supermarket chain in the country offers at least 

one PL ketchup in addition to NB ketchups. 

Recent trends illustrate the evolution of PLs and their importance in food 

retailing. For example, the Food Institute Report (2009) notes that PL sales 

grew an average of 4.5 percent per year from 2003 through 2008. Sales for 

packaged NBs fell during the same period. PLs have improved in quality 

relative to NBs (Consumer Reports, 2009). They have also increased in total 

product offerings, as most supermarkets today offer at least one PL option in 

nearly all product categories (The Food Institute, 2010). 

Private labels have been the subject of economic research for nearly a 

century.1 Much of the PL-related research focuses on consumer welfare 

effects. Steiner (2004) summarizes a subset of the literature that argues that 

intrastore competition between NBs and PLs is important for generating 

consumer welfare through lower overall prices and increased quality and 

variety in supermarkets. Several studies have argued against the profitability of PL promotions (Tellis and Zufryden, 1995; Ailawadi et al., 2001). 

However, the data used in this study show that PLs are promoted more 

frequently than NBs, with the average PL on sale 54 percent of the time and 

the average NB 36 percent of the time. Using a unique dataset with supermarket prices and promotions, the author examines the NB/PL relationship in 

today’s food retailing environment, as measured by the timing and incidence 

of promotions.2

This report details the nature of intrastore promotional interaction between 

NBs and PLs using econometric methods based upon contingency table 

analysis. The results demonstrate the magnitude of NB/PL promotional 

interaction, while showing the effect of various market and departmental 

factors. In addition, since this analysis uses 2008-10 data, an analysis was 

conducted of retail market trends both during and after a recession. A 

confluence of factors was responsible for accelerating U.S. retail food prices 

from mid-2007 through March 2009. Concurrently, the United States fell 

into a recession in December 2007 that lasted until June 2009. The combination of a recession and a retail food price spike was unique, as retailers 

faced both higher costs and weaker demand. The timing of the data used 

here is therefore important in attempting to measure the effects of PLs on 

supermarket practices and prices.

1Research on PLs dates back at least 

to Braithwaite (1928), who showed 

that PL prices are lower than those for 

advertised brands and attributed the 

difference to a reputation premium for 

the latter.

2It should be noted that this study 

focuses entirely on the timing of NB 

and PL promotions that come from a 

single manager and does not examine 

competitive effects across stores.
2

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Private Label Trends

The motivation for studying NB/PL interaction comes from the changes in 

PL products in American supermarkets over the last two decades. As a point 

of reference, Connor and Peterson (1992) examined the major determinants of 

the NB/PL price difference in supermarkets. The main working assumptions 

of that report are worth noting, as they are indicative of the nature of PLs at 

that time. The authors assumed that the market share of PLs within product 

categories was very small, that there was no product differentiation among 

PLs, and that PLs were subject to no advertising in newspapers or any other 

media outlets. Each of these assumptions was likely plausible in the 1990s, 

but could be considered farfetched in today’s food retailing environment. 

With respect to the brands it sells and promotes, the supermarket industry has 

changed over the last two decades.

A number of studies, including Corstjens and Lal (2000) and Cotterill and 

Putsis (2000), as well as several summarized by Steiner (2004), have shown 

that the penetration as well as the quality of PLs has shown a considerable increase within product categories. The food retailing publication 

Progressive Grocer (2010) has dedicated at least a dozen articles from the 

years 2007 through 2010 to the rise in popularity of PLs and the concerted 

efforts of grocers to promote them to consumers and increase sales. 

As mentioned above, total PL sales grew at an annual rate of 4.5 percent 

per year from 2003 through 2008 (The Food Institute Report (2009), using 

Nielsen Scantrack data). The Food Industry Review (The Food Institute, 

2010) demonstrates that much of this growth comes at the expense of NB 

sales. Food product categories with the most gains relative to NBs in 2009 

include baking ingredients and snacks. From 2005 through 2009, total 

channel sales (those involving NBs) increased by $24 billion, or about 8 

percent, while PL sales increased by $10 billion, or 18 percent. Hence, PLs 

gained over 2 percent of the NB market share during the 5-year span (fig. 1). 

Figure 1

Five-year dollar trend sales for supermarkets 

Billion dollars

2005

350

300

250

200

150

100

50

0

Source: The Food Institute.

Private label Total channel

2006

45 45.7

273.1 277.4 287.2 295 297.1

49.2 53.9 55.5

2007 2008 2009
3

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Much of the recent PL increase in market share and sales can be explained 

by the 2007-08 food price spike and 2007-09 recession. Lamey et al. 

(2007) showed that PL demand increases and NB demand decreases during 

economic downturns, owing mostly to lower PL prices for comparable products. Confirming this pattern for the recent recession, Straczynski (2009) 

found that PL dollar sales increased by 7.4 percent from July 2008 through 

July 2009. This increase significantly outpaced the average PL growth of the 

previous 5 years.

Retailers are increasingly using PLs as a means to differentiate themselves from competitors. In addition to standard flagship PLs that bear firm 

names, supermarkets are offering more premium and organic brands, such 

as Safeway’s SELECT and O Organics, Kroger’s Private Selections and 

Naturally Preferred, and Giant’s Nature’s Promise (Martinez, 2007). These 

premium PLs serve not only to distinguish supermarket chains’ product lines 

from one another but also to place NBs and PLs more directly in price and 

quality competition.
4

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Data and Statistics

Weekly price and promotion data from two major supermarket chains (herein 

referred to as Chain 1 and Chain 2), both of which operate mostly in the 

Western United States, were used in this analysis.3 The data come from the 

companies’ respective corporate web sites, span June 2008 through August 

2010,4 and cover 17 cities for which online retail data were available at the 

time of collection (table 1). 

The cities sampled range from large (Los Angeles) to small (Palm Springs) 

and from relatively high income (San Jose) to relatively low income 

(Baltimore). Conversations with professionals from both chains, as well as 

preliminary analyses of the data, indicated that the prices retrieved online 

closely matched those within the brick-and-mortar supermarkets. Moreover, 

price variation within a chain in a given metropolitan area was minimal, 

occurring only during instances of unexpected inventory shortages.

The data include only products for which very close pairings were possible 

across NBs and PLs. The criteria for matching across labels follow Connor 

and Peterson (1992) and require that potential substitutes be within the same 

product category and have the same characteristics as descriptors in the 

product names (e.g., chocolate flavor or low-salt). Each pair of products is 

matched according to size (for example, 12-oz Heinz Ketchup is paired with 

the PL 12-oz ketchup for each of the two retailers), as well as by taste and 

3Chain names, which have no bearing on the analysis or the empirical 

outcomes, are kept confidential.

4In each of the cities sampled, either 

Chain 1, Chain 2, or both offered 

consumers the option of purchasing 

their groceries online. Consumers can 

then opt for home delivery or in-store 

pickup of their purchased goods. In 

order to browse prices and observe 

promotions, consumers need to input 

their ZIP Codes. The data were gathered weekly using a technique known 

as “screen scraping,” whereby the 

appropriate ZIP Codes were entered 

automatically into the two corporate 

web sites once per week and the 

breadth of prices and promotions was 

downloaded.

Table 1

Cities sampled

City ZIP Code Chain Population

Median 

household 

income

Number Dollars

Boise, ID 83705 Chain 2 185,787 42,432

Palm Springs, CA 92262 Chain 2 42,807 43,800

Salt Lake City, UT 84101 Chain 2 178,858 37,287

Los Angeles, CA 90023 Both 3,849,378 42,667

Las Vegas, NV 89103 Both 478,434 47,863

Portland, OR 97213 Both 537,081 42,287

San Diego, CA 92114 Both 1,256,951 55,637

Seattle, WA 98101 Both 582,424 49,297

Vancouver, WA 98660 Chain 1 158,855 40,743

Sacramento, CA 95815 Chain 1 453,781 44,867

San Jose, CA 95113 Chain 1 929,936 70,291

San Francisco, CA 94102 Chain 1 744,041 57,496

Washington, DC 20001 Chain 1 581,531 47,221

Tucson, AZ 85701 Chain 1 518,956 34,241

Philadelphia, PA 08026 Chain 1 1,448,394 32,573

Baltimore, MD 21075 Chain 1 631,366 32,456

Fresno, CA 93650 Chain 1 466,714 37,800

Source: ERS estimates from the U.S Census Bureau, 2005.
5

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

nutritional attributes, such as flavor or low-sodium content, that are included 

in the product description. In total, the analysis includes the pricing and 

promotional behavior of over 5,800 unique NB products, each paired with 

an appropriate PL substitute. Many PL products are paired with more than 

one NB, as most product categories contain multiple NBs with similar characteristics. The products span 257 product categories and cover every major 

department in the supermarket.5 5The complete list of paired products 

is available from the author upon request.
6

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

National Brand/Private Label 

Price Differences

Any prospective measurement of a PL welfare effect for consumers must 

consider the price differences between NBs and PLs as a measure of potential 

savings (Ward et al., 2002). The difference between NBs and PLs in price, 

with and without promotions, varies from 17 percent for salad dressing to 33 

percent for packaged bread (table 2). The NB/PL price margin for product 

pair i during week t is given by:

i,t i,t

i,t

i,t

NB Pr ice PL Pr ice

Pr iceDif NB Pr ice

- =

The shelf price is the price printed on the supermarket shelves and does not 

include promotional discounts. The promotional price represents the price 

paid by consumers who take advantage of promotions, either by using a 

loyalty card or by any other method used by the supermarket for promotions. 

For products not on sale, the promotional price equals the shelf price. 

The NB/PL price difference is fairly similar with or without promotions, as 

the average difference among NB and PL shelf prices is 23 percent and rises 

to only 25 percent during PL promotions. However, Volpe (2010) shows that 

the average difference between NB promotional prices and PL shelf prices 

is about 3 percent, which implies that PL promotions are instrumental in 

determining the overall NB/PL price differences. This finding suggests that 

retailers may set NB and PL promotions simultaneously in order to manage 

brand-level shares, a possibility that is investigated here using a contingency 

table analysis.

As table 2 shows, the differences for shelf prices and promotional prices 

vary considerably across supermarket departments. Among shelf prices, 

the greatest difference is in the beverage department, at 29 percent, and the 

smallest difference occurs for the baking and cooking and the dressing and 

salad toppings departments, at about 17 percent. For some departments, the 

promotional price difference is wider than for the shelf price, while for others 

it is smaller. The overall average NB/PL price differences presented here are 

lower than the 40 percent found by Dhar and Hoch (1997) or the 30 percent 

found by Ailawadi et al. (2001), and imply that PL and NB prices may be 

converging.6

6Such a convergence may be due 

to decreases in average NB prices, 

increases in average PL prices, or both. 

Identifying which of these is the cause 

of the convergence is beyond the scope 

of this study, but may be a fruitful 

direction for future NB/PL research.
7

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Table 2

Average percentage differences in national brand (NB) and private 

label (PL) pricing, by department

Department

Percentage difference, NB-PL

Shelf price

Promotional 

price

Percent

Baking and cooking 17.24 17.56

Boxed dinners 28.45 26.83

Beverages 28.95 27.30

Breakfast foods 26.59 26.46

Canned goods 23.35 24.82

Condiments 19.25 24.47

Coffee and tea 18.83 19.45

Dairy 20.58 25.51

Salad dressing 16.88 21.08

Frozen food 19.13 22.77

Mexican 24.61 26.25

Meat and seafood 18.13 12.06

Packaged bread 33.62 34.54

Pasta, rice, and beans 22.64 22.33

Snacks 22.98 20.87

Soup and chili 25.06 28.39

Total 22.89 24.53

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author.
8

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Recession Versus Recovery Effects

As noted, the demand for NBs and PLs can change significantly depending 

on economic conditions. Moreover, the differences in the supply channel for 

NBs and PLs suggest that the macroeconomic drivers of food prices may 

impact NBs and PLs differently. The timespan of the data includes part of a 

recession, so the data are divided into two time series for analysis: June 2008 

through June 2009 is labeled the recession and July 2009 through August 

2011 the recovery.7 This division enables a statistical comparison of the NB/

PL landscape between the two economic conditions. Assuming that supermarkets seek to maximize profit, then PL prices should be relatively higher 

during the recession than NB prices due to increased demand, all else equal. 

To compare average prices across time, some measure of relative or weighted 

prices is necessary. Yu and Connor (2002) demonstrate that using raw prices 

for averaging across products results in intrinsically more expensive products receiving high weights. For that reason, relative prices were calculated 

by normalizing each observed price to the mean value of the price over the 

entire time series. Hence, the relative price for product j at time t is

jt

jt

j

p

rp

p =

where j p is the mean price of product j over the time series. By this normalization, deviations from the mean price can be interpreted as percentages. 

Other valuable comparisons across the recession and recovery include the 

percentage of time that products are on promotion (frequency) and the 

average percentage discount offered during promotions (depth). 

Statistically, prices for both NBs and PLs were significantly higher during 

the recession, when high commodity prices and fuel prices drove food prices 

upward (table 3). However, shelf prices reveal that NB prices were 5 percent 

higher during the recession, while PL prices were 11 percent higher. The 

NB/PL price difference, or the potential savings consumers can achieve 

by purchasing PLs, was 21 percent during the recession compared with 25 

percent during the recovery. The increase in PL prices relative to NB prices 

during the recession likely reflects the response of supermarkets to increased 

and more inelastic demand for PLs and suggests that store managers 

may have less incentive to promote PLs competitively with NBs during a 

recession.

Another finding is that, for NBs and PLs, promotional frequency and depth 

both increased slightly during the recession. The relative promotional prices 

indicate that these increases were almost exactly enough to maintain consistent deal prices regardless of economic conditions. That is, the average price 

of items on sale was approximately the same between the recession and 

recovery. This pricing strategy has important implications for consumers 

facing budget constraints during economic downturns. By purchasing PLs 

and seeking out promotions, consumers may be able to prevent their food 

expenditures from increasing dramatically during times of rising food prices.

7This break point is consistent with 

the official National Bureau of Economic Research designation of June 

2009 as the ending of this recession. 

In addition, using quarterly Gross Domestic Product numbers, the economy 

shrank by 4 percent during the first 

period of this analysis and grew by 

almost 5 percent in the second period, 

lending credence to the choice of when 

to divide the data.
9

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Table 3

Summary statistics for prices and promotional activity, 

by label and period

Item

National brand Private label

Recession Recovery Recession Recovery

Shelf price ($) 3.96

(2.11)

3.67

(2.08)

3.05

(1.68)

2.67

(1.65)

Promotional price ($) 3.50

(1.98)

3.48

(2.00)

2.57

(1.56)

2.49

(1.60)

Promotional frequency (%) 45.19

(25.18)

44.88

(23.54

53.21

(22.73)

51.89

(22.11) 

Promotional depth (%) 24.67

(13.87)

24.28

(13.03)

24.62

(11.05)

23.33

(11.78)

Relative shelf price ($) 1.02

(0.08)

0.97

(0.10)

1.05

(0.09)

0.94

(0.13)

Relative promotional price ($) 1.01

(0.17)

1.00

(0.16)

1.00

(0.14)

0.99

(0.13)

National brand/private label price 

difference (%)

21.41

(19.75)

25.42

(26.21) N/A N/A

Note: Standard errors in parentheses. NA = Not available.

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author. 
10

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Heavy Private Label Promotion

Certain PL products are virtually always on promotion. In examining the 

entire data set for all products sold online at Chain 1 or Chain 2, the author 

found that nearly 7,200 different products were on promotion at least 85 

percent of the time.8 Products with the highest promotional frequencies in 

the data set are more likely to be PLs than NBs. For example, 74 percent of 

all products on promotion at least half the time are NBs. Given that slightly 

over 80 percent of all products are NBs, PLs are only marginally overrepresented among those products on promotion more often than not. However, 

if we consider only those products on promotion at least 85 percent of the 

time, only 28 percent of the remaining products are NBs. Therefore, PLs are 

considerably more likely to be placed on constant or near-constant promotion 

than are NBs.

One intuitive explanation of this phenomenon is that retailers face a difficult 

balancing act when setting PL promotions relative to NBs (Steiner, 2004). A 

price difference between substitutes that is too high may signal to consumers 

that the PL is of low quality. However if the difference is too narrow, then 

consumers will always purchase the NB because NBs enjoy a “reputation 

premium” drawn from familiarity and longevity on the shelves. The nearly 

perpetual PL price promotion may represent a solution to this pricing conundrum. Under this strategy, PLs are given a clearly visible shelf price that is 

relatively close to the price of respective NB substitutes, communicating the 

message that the PL and NB product are of comparable quality. However, 

the promotional price provides a wider price difference, increasing the probability that the consumer who would always choose the NB at equal pricing 

will purchase the PL.

In order to assess this explanation, the relationship between NB and PL 

promotions was examined. Figure 2 shows how the average promotional 

frequency for NBs and PLs varies according to the number of competing 

NBs within product categories. In general, the PL promotional frequency 

follows a clear and direct relationship with the number of NBs—that is, 

supermarkets promote their PLs more heavily in product categories with 

more NB substitutes. When the number of NBs is low, between one and 

four, average PL promotional frequency is slightly below 60 percent. 

However, the average PL promotional frequency is nearly 80 percent for 

product categories with 17 or 18 NBs, such as ice cream and shredded 

cheese.9 This suggests that retailers make a more determined effort to 

promote and expand the market share of PLs when they are competing with 

more NBs. Promotional prices are, on average, 20 percent lower than shelf 

prices, so consumers see deeper and more frequent price discounts on PLs 

in categories featuring many competing NBs.

The average price difference between NBs and PLs, in percentage terms, 

widens when promotions are taken into account, and PL promotional 

frequency increases with the number of competing NBs within categories. 

Therefore, conventional supermarkets may be using their PL promotions to 

achieve the goal of maintaining NB/PL price differences wide enough to 

overcome the reputation premium of NBs without signaling low PL quality to 

consumers. This possibility is explored more fully in the next section.

8A product is defined entirely by 

its name in this data set, which is in 

turn provided by the chain in which 

it is sold. Therefore, an identical NB 

product sold at both Chain 1 and Chain 

2 is counted as two unique products 

in the data set. The entire data set 

collected from both chains includes 

approximately 70,000 unique products 

by this definition, after the requisite 

data cleaning.

9PL promotional frequency drops off 

for categories featuring 19 or 20 NBs, 

but those categories are quite rare in 

the data.
11

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Figure 2

Average promotional frequency by the number of national brand

products within categories

Percent

Number of national brand products

1-2 3-4 5-6 7-8 9-10 11-12 13-14 15-16 17-18 19-20

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author.

PL Promotional frequency NB Promotional frequency
12

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Promotional Interaction Between National 

Brand and Private Label Substitutes

The nature of the interaction between NBs and PLs was examined by using 

a two-stage process that focuses upon promotional timing. First, the contingency tables were used to measure the extent to which the expected coincidence of NB/PL promotions compares with the observed coincidence. Then, 

in the second stage, an econometric model based on the findings drawn from 

contingency tables was used.

Simultaneous NB/PL Promotions: 

Expected Versus Observed

Contingency tables are useful for examining the extent to which competing 

chains interact with one another in promotional activity. They are statistical 

tools that perform the cross tabulation of categorical variables. Hence, contingency tables use the binary variables for NB and PL promotions to enable 

the classification of promotional interaction as either retaliatory or accommodating. As noted, one of the main reasons for focusing on PLs is that they are 

components of both interstore and intrastore competition. 

Figure 3 provides an example of a two-way contingency table, comparing 

the promotions of PL and NB products for the snack category, pooling both 

chains. The only products under consideration in this analysis are those NBs 

and PLs matched as close substitutes within product categories (recall that 

PLs may be matched with more than one NB). The two-way table reports the 

total promotional frequencies for all possible promotional outcomes across 

labels, namely, both NB and PB on promotion, only NB on promotion, only 

PL on promotion, or neither product on promotion. The NB snack products 

are on promotion 47 percent of the time, a figure hereafter referred to as pNB. 

The PL substitutes for these products are on promotion 56 percent of the 

time, yielding pPL. The expected percentage, pE, of the time that promotions 

occur simultaneously across labels for substitutes, given independence, is thus 

pNB

*pPL = 26 percent. The bottom right cell of the contingency table reveals 

that promotions occurred simultaneously for substitutes a total of 28 percent 

of the time. The percentage difference between pE and the observed coincidence of joint promotions, pO, is given by (pO – pE) / pE = (28-26) / 26 = 8 in 

this case.10 Therefore, NB and PL snack substitutes are on promotion simultaneously 8 percent more often than would be expected given independence 

in pricing across labels, which indicates a competitive relationship between 

the two labels. Retailers offer promotions with the intention of increasing 

sales for a given product. If retailers are intentionally promoting comparable 

substitutes simultaneously, as the figure suggests, then the two products are 

necessarily competing for a sales increase. 

When promotions are considered within categories, promotional decisions 

for NBs and PLs ultimately come from the same manager. Therefore, the 

results of these contingency tables show the extent to which retailers promote 

NBs and PLs simultaneously or within 1 to 4 weeks in order to position 

them competitively to consumers. The simultaneous promotion case is of 

particular importance in this analysis, as managers can coordinate promotions within stores for both NBs and PLs. These contingency tables were 

10Calculating the percentage difference between expected and observed 

counts in the contingency table cells 

is standard practice in determining 

the relationship between categorical 

variables (DeGroot, 1986).
13

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

constructed for the entire time series, and also separately for the recession 

and recovery periods, to examine the role of the economic downturn on NB/

PL competitiveness.

The summary statistics for the promotional interaction between NBs and 

PLs over the entire time series show the percentage difference between the 

expected and observed incidence of simultaneous NB and PL promotions 

(table 4). Across the entire store, and allowing for up to 4 weeks’ response 

time, the frequency of observed joint promotions on NBs and PLs is about 

23 percent higher than the frequency of expected joint promotions, given 

independence. This finding indicates an overall relationship between NBs 

and PLs that is competitive. For most departments, as well, the relationship between NB/PL promotions is competitive on average. The greatest 

magnitudes of NB/PL promotional interaction occur for the boxed dinners, 

beverages, and coffee departments, all of which have an interaction of over 

30 percent. The departments showing the least interaction are produce and 

fresh meat.

Examining NB/PL interactions separately for the recession and recovery 

reveals that competition between the two labels, as measured by promotional interaction, is much weaker during the recession. The overall average 

magnitude of promotional interaction is 15 percent during the recession and 

38 percent during the recovery, a statistically significant difference. Among 

several of the departments, the differences are more striking. The figures 

for boxed dinners are 47 percent and 121 percent, respectively. For salad 

dressing, they are 3 percent, which is not statistically different from zero, and 

73 percent. Average NB/PL promotional competition is higher during the 

recovery for all departments except packaged bread and pasta. These descriptive statistics strongly suggest that retailers are less inclined to set PL promotions to coincide with NB promotions during recessions. Since demand is 

Figure 3

Contingency table for promotional comparison of national brands

and private labels for the snack depar tment

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author.

Private label

National Brand

No promotion

Promotion

Total percent

41.67

14.49

44.31

15.31

28.63

55.69

52.47

47.53

100.00

No promotion Promotion Total percent
14

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Table 4

Summary statistics on promotional interaction between national brand 

and private label substitutes, by department

Department Total1 Recession Recovery

Percent

Baking and cooking 24.11

(11.83)

22.29

(10.65)

28.28

(49.98)

Boxed dinners 62.79

(38.96)

46.55

(39.74)

120.84

(85.81)

Beverages 33.76

(10.31)

15.79

(5.28)

58.49

(24.40)

Breakfast foods 26.75

(10.49)

11.11

(8.17)

24.98

(25.00) 

Canned goods 32.00

(11.10)

24.36

(11.45)

43.97

(19.14)

Condiments 23.26

(9.31)

10.96

(6.89)

47.58

(30.77)

Coffee and tea 35.50

(11.52)

21.01

(8.14)

50.76

(21.56)

Dairy 20.31

(8.00)

3.68

(3.53)

48.00

(21.30)

Salad dressing 25.64

(8.65)

3.09

(1.98)

72.73

(35.13)

Frozen food 23.17

(7.57)

11.66

(4.48)

42.53

(18.76)

Meat and seafood 4.18

(9.27)

-2.51

(10.13)

6.16

(30.29)

Packaged bread 12.48

(7.81)

15.84

(9.67)

7.34

(8.52)

Produce and floral 2.43

(17.03)

0.90

(19.47)

4.04

(26.95) 

Pasta, rice, and beans 25.81

(10.68)

24.03

(11.07)

24.03

(34.94)

Snacks 14.58

(9.96)

13.37

(11.86)

15.72

(22.65)

Soup and chili 12.88

(9.86)

11.26

(5.60)

20.15

(13.35)

Total 23.28

(19.25)

14.66

(17.34)

38.05

(43.35)

Note: Standard errors in parentheses.

1The promotional interaction is the percentage difference between the observed incidence of 

simultaneous national brand/private label promotions and the expected incidence given 

independence.

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author. 
15

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

up then for PLs, retailers have less incentive to protect or expand PL market 

share strategically at that time. 

Trade promotions, or price discounts from upstream manufacturers, may 

play a role in shaping NB/PL interaction. Trade promotions can affect the 

timing of NB promotions, but a body of empirical evidence suggests that 

retailers have control over the timing and extent to which trade promotions 

affect in-store prices. For example, Levy et al. (1998) found that supermarkets change an average of 4,000 prices per week, although only an average of 

1,000 upstream prices change per week. 

Retailers have little incentive to pass trade promotions on to consumers unless 

manufacturers require some passthrough of the wholesale price discount. A 

wholesaler’s ability to impose terms upon retailers is directly related to its 

market power. NB products for the produce, meat, and dairy departments 

tend to come from regional producers and cooperatives with limited market 

power with which to offer trade promotions or enforce passthroughs. This 

limitation may explain why retailers simultaneously promote NBs and PLs 

with relatively low frequency in these departments. These departments also 

feature perishable products, and many promotions may be timed to move 

fresh products rather than for strategic or competitive reasons.

Modeling Promotional Interaction

To quantify the nature and the determinants of NB/PL promotional interaction, a regression model was used to explain the percentage difference 

between expected and observed joint promotions, as calculated by the 

two-way contingency tables. The explanatory variables are drawn from a 

review of the largely descriptive literature on NB/PL interaction, although 

formulating ex ante expectations on most coefficient signs is difficult, as the 

nature of NB/PL promotional interaction has not been considered or quantified to any significant degree. The estimated model is:

1) PromoResponseij = 1Lag1i + 2Lag2i + 3Lag3i+ 4Lag4i + 5NBi

+ 6Herfi,j + 7WalSharei,j + 8MHIi,j + 9PopDensi,j + 10Onlinei

+ DDepartments i +ui,j

where PromoResponse is the percentage difference between the observed 

frequency of joint promotions and the expected frequency of joint promotions, given independence between labels, for product pairing i in city j, as 

calculated from the contingency tables. Lag1, Lag2, Lag3, and Lag4, are 

binary variables equal to one if the response time given to the labels is equal 

to 1, 2, 3, or 4 weeks, respectively. This model thus allows for the possibility 

that retailers set promotions in order to mitigate unintended brand switching 

resulting from advertised promotions. 

NB is a binary variable equal to one for the cases in which PL promotions 

are responding to NB promotions—that is, the NB promotions are lagged 

when applicable. Blattberg, Briesch, and Fox (1995) showed that the amount 

of brand switching that occurs is asymmetric with respect to labeling, in 

that more consumers switch from PL to NB during an NB promotion than 

the converse. Leeflang and Wittink (1996) showed empirically that brand 

switching increases with total market share, a finding in line with the work 
16

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

of Blattberg et al. Thus, retailers have a stronger motivation to set promotions 

to minimize brand switching away from PLs than from NBs, resulting in a 

predicted positive sign for the variable. 

Herf gives the market concentration of the city in which the promotional 

response is calculated, as measured by the Herfindahl Index.11 The relationship between price and concentration has been explored extensively, and the 

overwhelming consensus is that prices rise—and, in general, supermarkets 

set prices less competitively—as concentration increases (Lamm, 1981; 

Cotterill, 1986). Volpe and Lavoie (2008) showed that the direct relationship between prices and concentration applies much more strongly to NBs, 

as PL prices rise only marginally in concentrated markets. Given that the 

NB/PL price difference is likely to increase with concentration, competition between the labels is expected to decrease with concentration. The 

intuition is most clear with regard to PLs: retailers have less incentive to 

closely manage their PL promotions with respect to NB promotions if the 

difference is great enough to preclude the loss of PL market share to higher 

priced NB substitutes.

WalShare is the market share of Walmart, as measured by supercenters and 

Sam’s Club warehouse stores in increments of 10 percent. Several researchers 

have stressed the importance of considering the presence of Walmart when 

examining supermarket behavior and food retailing in general. Supercenters 

are most popular among low-income consumers (Franklin, 2001), which is 

also the demographic most likely to purchase PLs. Therefore, it stands to 

reason that PLs are priced more competitively in cities in which Walmart is 

strongest, but price competition across stores would not be captured by this 

analysis since only intrastore effects were examined. The effect of Walmart 

Supercenters on NB/PL interaction is unclear, although Jones (2003) argues 

that conventional supermarkets would do best to minimize promotions in 

general when faced with direct competition from Supercenters. Less promotional activity would likely result in weaker measurable competition between 

NBs and PLs overall, as measured by promotional interaction.

MHI is median household income. Low-income consumers have historically 

been the target demographic for PLs. Therefore, as MHI increases, firms tend 

to have less incentive to promote their PLs competitively with NBs, resulting 

in weaker NB/PL interaction overall.

PopDens is population density, a control commonly used in studies of retailer 

sales and profits, measured in thousands of people per square mile.

Finally, Online is a binary variable equal to one for those cities in which 

both Chain 1 and Chain 2 offer online retail. In this data set, those cities are 

Las Vegas, Los Angeles, San Diego, Portland, and Seattle. Given that the 

presence of two online retailers increases the ease of competitive price monitoring, interstore competition is expected to be higher in these cities. However 

the anticipated effect of both chains offering online retail is negative in the 

intrastore case, as retailers are more likely to focus their promotions toward 

competitive goals. The model also includes a complete set of departmental 

fixed effects in the vector Departments. The model is estimated without an 

intercept to facilitate the interpretation of the departmental binaries.

11The Herfindahl Index is calculated 

as the sum of squared market shares 

for all of the food retailers operating 

in metropolitan areas. The market 

shares are expressed as fractions, and 

therefore a value of one denotes the 

monopoly setting.
17

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

All demographic and market condition variables were calculated using data 

from Market Scope, a publication of Trade Dimensions. Table 5 provides 

selected summary statistics for the continuous explanatory variables of equation 1 and shows that across the cities examined, the regressors show significant variation. 

Table 5

Summary statistics for the determinants of promotional interaction

Variable Mean

Standard 

deviation Minimum Maximum

Herfindahl 0.18 0.04 0.10 0.27

WalShare (%) 8.47 9.84 0.00 29.50

MHI (1000s USD) 45.47 9.12 32.46 70.29

PopDens (1000s/sq. mile) 4.30 2.05 0.45 8.51

WalShare = Walmart Share; MHI = Median Household Income; PopDens = Population Density.

Source: Market Scope, 2006. 
18

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Regression Results

The time series nature of the data provides an opportunity to examine how 

intrastore NB/PL dynamics may differ according to economic conditions. As 

a result, the discussion looks at the overall results and the differences across 

the recession and recovery in turn. While using the entire time series takes 

advantage of the most information from the two chains, analyzing the data 

during and after the recession helps to identify a potentially key determinant 

of retailer strategy.

Examining the Entire Time Series

Table 6 reports the results of the estimation of equation 1.12 Overall, promotions are more likely to overlap across labels than we would expect given 

independence. In the parlance of promotional interaction (e.g., Steenkamp et 

al., 2005), this relationship is described as competitive. This finding is drawn 

from the positive and significant departmental binaries. For all departments 

except meat and seafood, packaged breads, produce, soups, and snacks, the 

observed coincidence of simultaneous NB/PL promotions is significantly 

higher than expected, given independence, when we control for several 

market, demographic, and departmental factors. The binaries for lags of 1 

and 2 weeks are positive and significant, which means that managers are most 

likely to set NB (PL) promotions 1 to 2 weeks following PL (NB) promotions. After 2 weeks, the likelihood of promotional activity decreases. 

To properly interpret the binary terms, it is necessary to consider promotional frequency. The percentage of time a product is on promotion can be 

thought of as the probability that a product is on promotion at any given time. 

Consider the beverages category, which has a coefficient of 0.22. When a PL 

(NB) beverage product goes on promotion at a conventional supermarket, the 

probability of seeing a comparable NB (PL) beverage product on promotion 

at the same time increases by about 22 percent over the average promotional 

frequency. The increase in probability the following week for such a promotion is closer to 24 percent, factoring in the coefficient on Lag1Week, and 

about 23 percent in 2 weeks’ time. 

Market concentration, as measured by the Herfindahl, has a strong and 

significant positive effect on NB/PL promotional interaction, which may 

be because, as concentration increases, markets become less competitive. 

Therefore, retailers have less incentive to respond to competitive promotions, 

and they focus more intently on intrastore pricing considerations. Strong NB/

PL interaction, as measured in this report, is indicative of retailer efforts to 

manage brand-level market share as a means of profit maximization. (This 

finding is revisited when the effect of the recession is considered.) The presence and market share of Walmart has a significant negative effect on NB/PL 

competition. This may be because supermarkets focus more on everyday low 

prices and offer fewer promotions overall when competing with supercenters, 

a possibility that calls for further research.

In perhaps the most counterintuitive result in this analysis, the coefficient on 

NB is insignificant, meaning that there is no significant difference between 

NB responses to PL promotions and PL responses to NB promotions. Given 

12Equation 1 for the whole time 

series is estimated using ordinary 

least squares (OLS). Preliminary 

diagnostics indicated the presence of 

heteroskedasticity in the errors, and the 

standard errors are corrected for heteroskedasticity using White’s method.
19

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

—Continued

Item Total1 Recession2 Recovery

Lag1week 0.0231***

(2.80)

0.0171*

(1.65)

0.0408

(1.54)

Lag2weeks 0.0162**

(1.97)

0.0101

(0.96)

0.0120

(0.45)

Lag3weeks 0.0086

(1.05)

-0.0006

(0.06)

-0.0187

(0.70)

Lag4weeks 0.0027

(0.32)

-0.0058

(0.55)

-0.0410

(1.55)

NB 0.0041

(0.91)

-0.0108*

(1.86)

-0.0181

(1.23)

Herfindahl 0.3557***

(4.49)

0.1592

(1.58)

-0.4732*

(1.81)

WalShare -0.2220***

(8.45)

-0.1132***

(3.36)

-0.2641***

(3.10)

MHI 0.0488*

(1.84)

0.4440

(1.32)

0.3749***

(4.42)

PopDens 0.0733***

(6.03)

0.0052***

(3.38)

-0.0021

(0.51)

Online 0.0144***

(3.06)

-0.0172***

(2.87)

0.0441***

(2.92)

Baking & cooking 0.1245***

(5.78)

0.2070***

(7.53)

0.2214***

(3.11)

Boxed dinners 0.2345***

(10.19)

0.4096***

(14.90)

1.1470***

(15.90)

Beverages 0.2209***

(10.27)

0.1020

(1.41)

0.5234***

(7.35)

Breakfast foods 0.1510***

(7.02)

0.0552**

(2.01)

0.1883***

(2.64)

Canned goods 0.2034***

(9.45)

0.1877***

(6.83)

0.3783***

(5.31)

Table 6

Regression results for the determinants of national brand/private label 

promotional interaction
20

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

that retailers have several incentives to offer and promote PLs and that NB 

promotions typically result in more brand switching away from PLs than the 

converse, this coefficient was expected to be positive and significant. The 

most plausible explanation for this, however, is that supermarkets set promotions across products simultaneously. The act of setting PL promotions in 

Table 6

Regression results for the determinants of national brand/private label 

promotional interaction—(continued)

Item Total1 Recession2 Recovery

Condiments 0.1159***

(5.29)

0.0538

(1.15)

0.4145***

(5.80)

Coffee & tea 0.2357***

(10.93)

0.1542***

(5.61)

0.4466***

(6.18)

Dairy 0.0865***

(4.02)

-0.0190

(0.69)

0.4186***

(5.88)

Salad dressing 0.1398***

(6.50)

-0.0249

(0.91)

0.6658***

(9.35)

Frozen foods 0.1150***

(5.35)

0.0608

(0.98)

0.3638***

(5.11)

Meat & seafood -0.0733***

(3.41)

-0.0810***

(2.94)

0.0006

(0.01)

Packaged breads 0.0053

(0.24)

0.1013

(1.25)

0.0123

(0.17)

Produce & floral -0.0830***

(3.72)

-0.0508*

(1.79)

-0.0275

(0.38)

Pasta, rice, & beans 0.1414***

(6.57)

0.1845***

(6.71)

0.1788**

(2.51)

Soup & chili 0.0122

(0.56)

0.0567

(1.06)

0.1404*

(1.93)

Snacks 0.0292

(1.35)

0.0778***

(2.83)

0.0956

(1.34)

F statistic 447.80*** 173.05*** 181.38***

Adjusted R2 0.846 0.672 0.677

Number of observations 2,195 2,267 2,235

Note: Absolute value of t-statistics in parentheses.

***Coefficient is significant at the 0.01 level; **at the 0.05 level; *at the 0.10 level.

1Results for the entire time series are estimated using Ordinary Least Squares. 2Results for 

the different time periods are estimated using Seemingly Unrelated Regression. WalShare = 

Walmart Share; MHI = Median Household Income; Online = Online retail; PopDens = Population 

Density per 1,000 square miles. 

Source: ERS/USDA, from retail prices and promotions from 2008 to 2010 for two major 

supermarket chains, collected online by the author.
21

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

order to defend market share against NB promotions, which may be due to 

factors such as interstore competition or trade promotions, is captured by the 

contemporaneous case, where we frequently observe highly comparable products on sale at the same time. Given the large number of products examined, 

managers may be simply promoting those PLs most in need of market share 

protection more or less constantly, and therefore, the effect is not captured 

by the model. Regardless of the reason, the results indicate that retailers are 

promoting NBs and PLs as strong and nearly equal competitors, which bodes 

well for the vigor of NB/PL competition and consumer welfare.

Seasonality is a potential concern in deciphering the timing of supermarket promotions. Certainly seasonal peaks and troughs in demand can 

drive the frequency of observed NB/PL promotions to exceed the expected 

frequency. However, the departmental binaries indicate that promotional 

competition is particularly strong for several departments that are not 

affected by seasonal swings in demand. These include boxed dinners, 

breakfast foods, and canned goods.

Median household income has a small but significant positive effect on NB/

PL competition. This finding runs contrary to ex ante expectations and may 

reflect the ongoing effort on the part of retailers to improve the quality and 

penetration of PLs. PLs are likely to have strong sales in cities with relatively 

low incomes, and therefore supermarket managers today may be engaging 

in more intensive efforts to coordinate promotions in order to maximize PL 

sales in areas of higher income.

In sum, the regression results indicate that PL promotions are significantly 

more likely to be in sync with NB promotions than we would expect if the 

two labels were priced and promoted independently of each other. The results 

support the notion that retailers are aware that NB promotions, while effective for a number of competitive objectives, can be harmful to PL sales and 

can in turn reduce profits. Therefore, the results indicate that retailers are 

setting PL promotions simultaneously with NB promotions in order to protect 

PL sales.

Examining the Recession and Recovery 

Periods Separately

The nature of NB/PL promotional interaction differs considerably 

depending on the period during which it is examined (table 6).13 Again, the 

key coefficients to examine in order to understand the differences are those 

for the departmental binaries. During the recession, the NB/PL relationship was significantly competitive for only 6 of the 16 departments: snacks, 

baking and cooking, boxed dinners, canned goods, coffee, and pasta products. Hypothesis tests reveal that NB/PL interaction was more competitive 

during the recovery for boxed dinners, beverages, breakfast foods, canned 

goods, condiments, coffee, dairy, salad dressing, frozen foods, and fresh 

meat and seafood.

As explained previously, this disparity in NB/PL competition is likely 

because strong PL demand during the recession induces retailers to raise 

PL prices rather than to price and promote them competitively with NBs. 

Supporting this notion is the positive coefficient on NB that indicates that 

13The separate estimations for the 

recession and recovery were performed 

using seemingly unrelated regression 

(SUR), a systems approach. This strategy enables the testing of coefficients 

across equations.
22

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

during the recession, retailers were over 1 percent more likely to promote 

NBs in response to PL promotions than the converse. This suggests that 

the surge in PL demand, as documented by a number of trade publications, 

was strong enough that retailers set promotions to protect NB sales from PL 

promotions. During the recovery, NB is insignificant.

During the recovery, the coefficient on the Herfindahl index is negative and 

significant, and thus in line with a priori expectations. Therefore, during 

periods of relative economic health, NB prices appear to rise with market 

concentration and reduce overall NB/PL competitiveness. The effect of 

Walmart stores remains negative during both the recession and the recovery, 

although the magnitude of the effect is significantly higher during the 

recovery. Hence, standard market structure factors appeared to matter less in 

shaping NB/PL dynamics during the recession.
23

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Implications

The price difference between NBs and PLs has fallen significantly over time, 

possibly because PLs are increasing in both quality and market share relative to NBs. PLs are now promoted heavily, and promotions are more likely 

to occur in product categories with a large number of competing NB brands, 

suggesting that in many cases, PLs are priced and promoted to maximize 

market share within product categories. 

In terms of promotional interaction, NB and PL substitutes are considerably 

more likely to be on promotion simultaneously than would be expected if 

they were priced independently. In general, such a practice does not conform 

to standard category management on the part of food retailers, as research 

has shown that simultaneous promotion of brands within categories can lead 

to unprofitable cannibalization (Chintagunta and Halder, 1998). This provides 

further evidence that managers seek to maximize sales on PLs irrespective of 

considerations for the category overall. 

While this study does not measure consumer welfare, several studies, as 

summarized by Steiner (2004), show that NB/PL competition increases 

consumer welfare by expanding product choices and lowering prices for all 

brands. Since the analysis finds that the presence of supercenters significantly 

decreases NB/PL competition, increased competition from these kinds of 

stores changes the retail environment for consumers beyond simple price 

effects. 

Finally, the food price spike of 2008 and the 2007-09 recession significantly 

affected the nature of NB/PL interaction. While all of the empirical findings 

discussed above hold true throughout the recent swings of the U.S. business cycle, specific magnitudes vary considerably between the recession and 

recovery. NB/PL promotional competition was lower during the recession. 

Moreover, although all food prices increased as a result of both higher costs 

and lower demand, PL prices increased significantly more than NB prices. 

These findings imply that any positive effect PLs may have on consumer 

welfare, in terms of lower food prices, increased quality, or greater variety, 

may be mitigated during times of cost and/or demand shocks. The findings 

also show that attempts to measure a PL consumer welfare effect will depend 

heavily on when that measurement is taken. 
24

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

References

Ailawadi, K.L., S.A. Neslin, and K. Gedenk. 2001. “Pursuing the ValueConscious Consumer: Store Brands versus National Brands Promotions,” 

Journal of Marketing 65(1):71-89.

Berges-Sennou, F., P. Bontems, and V. Requillart. 2004. “Economics of 

Private Labels: A Survey of Literature,” Journal of Agricultural & Food 

Industrial Organization 2(3):1-23.

Blattberg, R.C., R. Briesch, and E.J. Fox. 1995. “How Promotions Work,” 

Marketing Science 14(3):G122-G132.

Braithwaite, D. 1928. “The Economic Effects of Advertising,” Economic 

Journal 38:16-37.

Chintagunta, P.K., and S. Haldar. 1998. “Investigating Purchase Timing 

Behavior in Two Related Categories,” Journal of Marketing Research 

35(1):45-53.

Connor, J.M., and E.B. Peterson. 1992. “Market-Structure Determinants of 

National Brand-Private Label Price Differences of Manufactured Food 

Products,” The Journal of Industrial Economics 40(2):157-71.

Consumer Reports. 2009. “It Pays To Buy Store Brands.” http://www.

consumerreports.org/cro/magazine-archive/october-2009/shopping/

buying-store-brands/overview/buying-store-brands-ov.htm.

Corstjens, M., and R. Lal. 2000. “Building Store Loyalty through Store 

Brands,” Journal of Marketing Research 37(3):281-91.

Cotterill, R.W. 1986. “Market Power in the Retail Food Industry: Evidence 

from Vermont,” The Review of Economics and Statistics 68(3):379-86.

Cotterill, R.W., and W.P. Putsis. 2000. “Market Share and Price Setting 

Behavior for Private Labels and National Brands,” Review of Industrial 

Organization 17(1):17-39.

DeGroot, M.H. 1986. Probability and Statistics, Second Edition. Addison 

Wesley, Reading, MA.

Dhar, S.K., and S.J. Hoch. 1997. “Why Store Brand Penetration Varies by 

Retailer,” Marketing Science 16(3):208-27.

The Food Institute. “2009 Brands Need Solid Positioning to Fend Off Private 

Label Encroachment,” The Food Institute Report, Dec. 21.

The Food Institute. 2010. Food Industry Review. 

Franklin, A.W. 2001. “The Impact of Walmart Supercenters on Supermarket 

Concentration in U.S. Metropolitan Areas,” Agribusiness 17(1):105-14.
25

The Relationship Between National Brand and Private Label Food Products / ERR-129

Economic Research Service/USDA

Jones, E. 2003. “An Application of Game Theory to Supermarket Pricing,” 

Journal of Food Distribution Research 34(1):56-62.

Lamey, L., B. Deleersnyder, M.G. Dekimpe, and J.E.M. Steenkamp. 2007. 

“How Business Cycles Contribute to Private-Label Success: Evidence 

from the United States and Europe,” Journal of Marketing 71(1):1-15.

Lamm, R.M. 1981. “Prices and Concentration in the Food Retailing 

Industry,” The Journal of Industrial Economics 30(1):67-78.

Leeflang, P.S.H., and D.R. Wittink. 1996. “Competitive Reaction Versus 

Consumer Response: Do Managers Overreact?” International Journal of 

Research in Marketing 13:103-19.

Levy, D., S. Dutta, M. Bergen, and R. Venable. 1998. “Price Adjustment 

at Multiproduct Retailers,” Managerial and Decision Economics 

19(2):81-120.

Martinez, S.W. 2007. The U.S. Food Marketing System: Recent 

Developments, 1997-2006, Economic Research Report No. 42, U.S. 

Department of Agriculture, Economic Research Service, May.

Progressive Grocer. 2010. “Are Store Brands the Brands of the Future?” 

Stagnito Media Publications, December 7.

Steenkamp, J.E.M., V.R. Nijs, D.M. Hanssens, and M.G. Dekimpe. 2005. 

“Competitive Reactions to Advertising and Promotion Attacks,” 

Marketing Science 24(1):35-54.

Steiner, R.L. 2004. “The Nature and Benefits of National Brand/Private 

Label Competition,” Review of Industrial Organization 24(2):105-27.

Straczynski, S. 2009. “Nielsen: U.S. Private Label Sales up 7.4%,” 

Brandweek, Nielsen Business Media. http://www.adweek.com/news/

advertising-branding/nielsen-us-private-label-sales-74-106253 

Tellis, G.J., and F.S. Zufryden. 1995. “Tackling the Retailer Decision Maze: 

Which Brands to Discount, How Much,When, and Why?” Marketing 

Science 14(3):271-99.

Volpe, R.J., and N. Lavoie. 2008. “The Effect of Walmart Supercenters on 

Grocery Prices in New England,” Review of Agricultural Economics 

30(1):4-26.

Volpe, R.J. 2010. “Price and Promotional Patterns of Major US 

Supermarkets,” Doctoral dissertation, University of California, Davis.

Ward, M.B., J.P. Shimshack, J.M. Perloff, and J.M. Harris. 2002. “Effects 

of the Private-Label Invasion in Food Industries,” American Journal of 

Agricultural Economics 84(4):961-73.

Yu, C.-c., and J.M. Connor. 2002. “The Price-Concentration Relationship in 

Retailing: Retesting Newmark,” Agribusiness 18(4):413-26.