As a central part of retail restructuring, the use of privatelabels is one of the main strategies through which foodretailers are able to improve their competitive position, inrelation to both their horizontal competitors and foodmanufacturers. This paper demonstrates that there aremarked contrasts in the organization of new product de-velopment for private labels between the food industries ofthe UK and US. It is suggested that these organizationaldifferences are rooted in the contrasting balance of powerrelations at the food retailer–manufacturer interfacewhich favor the retailers in the UK more than they do inthe US. Q 1997 John Wiley & Sons, Inc.

Introduction

The development of private labels is one of the mostimportant strategies through which food retailersare able to improve their competitive position, inrelation to their horizontal competitors and foodmanufacturers. As such, it plays a central role inboth retail restructuring and the production of par-ticular forms of retailer–manufacturer relation-ships. The extent to which private labels have be-come a part of the food system, however, variesbetween different national economies. The roleplayed by geography in shaping private label strate-

gy and associated retailer–manufacturer relationstherefore deserves attention.

The level of private label trading by food retailersin the UK is more than half that employed by USfood retailers and there are also marked contrastsin the character of this trading between the twocountries. Linked to this, the organization of pri-vate label supply chains is very different in theUK than it is in the US. This article examines onevery specific aspect of these contrasting forms ofprivate label supply chain—the organization of newproduct development. It is suggested that the verydifferent ways in which new product developmentfor retailers’ private labels is organized in the UKand US are very much rooted in both the differingnature of retail restructuring in the two nationalcontexts and the contrasting balance of power rela-tions at the food retailer–manufacturer interfacewhich favor retailers in the UK more than they doin the US.

The arguments of this article are supported usingempirical material taken from 56 corporate inter-views in both the UK and US, though the companiesinterviewed are not identified. This fieldwork wasconducted, for the most part, as a set of face-to-facesemi-structured interviews with representativesfrom the top food retailers in the UK and US, the

• Alex Hughes is at the University of Aberdeen, Department of Geography, Elphinstone Road, AberdeenAB92UF Scotland, United Kingdom.

The Changing Organization of New ProductDevelopment for Retailers’ Private Labels:

A UK–US Comparison

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•Alex Hughes

Agribusiness, Vol. 13, No. 2, 169–184 (1997)© 1997 John Wiley & Sons, Inc. CCC 0742-4477/97/020169-16

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leading food manufacturers of three selected prod-uct categories, a major US buying cooperative, aUS broker, a US trade journal, and industry ana-lysts in London and New York. The three productcategories of canned soup, take-home ice cream,and pasta sauce were chosen on the grounds that,between them, they cover a range of variationsalong the axes of market structure, market segmen-tation and private label market share (see Appendix1) in both countries. The qualitative informationgenerated from the corporate interviews has alsobeen supported by information appearing in tradejournals, company reports, the press, and academ-ic work. In addition, where appropriate, this paperalso uses empirical material covering other productgroups in order to support arguments concerningthe organization of new product development forprivate labels.

Retail Restructuring and Private Label Tradingin the UK and US

Private label, as a competitive retailing strategy,represents a logical way in which food retailers canimprove their competitive position and defendthemselves more effectively against other food re-tailing competitors, alternative retailing formatsand also food manufacturers (adopting the ideas ofPorter1). In basic terms, by becoming involved inthe sale of private label products, retailers are ableto play a more active role in developing the productoffering of their retailing service, erode the marketshare of manufacturers’ brands, take an increasingdegree of control over their supply chains and im-prove their profit margins (particularly if the prod-ucts are in high-margin categories). The ways inwhich retailers are effectively able to execute pri-vate label strategy, however, are very much boundup in issues of retailer power within the food sys-tems of the economies in which they operate. Forthis reason, the overall levels and strategic direc-tions of private label trading vary between the UKand US.

The ways in which the differing characters of pri-vate label trading in the UK and USA are embeddedwithin the contrasting retailing environments of the

two national economies have been argued in depthelsewhere.2 However, these arguments are summa-rized below in so far as they lay the foundations fora discussion of new product development for pri-vate labels in the two national contexts.

Retail Restructuring in the UK and US:A Brief Overview

The first point to note about UK–US differences infood retailing, which relates to differences in pri-vate label trading, is the contrast in the level of re-tail capital concentration (see Appendix 2). In theUK, the leading five supermarket chains constitut-ed over 50% of the total grocery market in 1992.3

The picture is very different in the US, with the topfive supermarket chains holding only just over 20%of the total grocery market in 1992.4 This contrastis, at least in part, due to the history of the very dif-ferent regulatory environments of the UK and US.5

In the UK, the state has rarely challenged mergers,acquisitions, and oligopolistic practice, whereas inthe US there has been a very strict enforcement ofantitrust legislation which, despite a more recentde-regulation of the industry since the early 1980s,has had the effect of stalling the concentration ofretail capital since the 1930s. Notably, antitrust leg-islation did not affect US food manufacturing inthis same way.

In part as a result of the lenient attitude of the UKstate towards the development of retail capital, UKretailing is now characterized by a powerful groupof big capital food retailing corporations who areable to exercise oligopsonistic buying power overtheir manufacturing suppliers. This is largely owingto their countervailing power as a concentratedbuying group able to exploit a concentrated supply-ing group.6 This is not the case in the US wherefood retailing, as a highly competitive and regionalindustry, stands in marked contrast to the national-ly-concentrated US food manufacturing industry.7

With regard to the overall balance of power rela-tions between food retailers and manufacturers inthe two national economies, it can be argued thatthe shift in the balance of power from the food man-ufacturers to the food retailers is less advanced in

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the US than it is in the UK. This shift in power rela-tions towards the food retailers in the UK arguablybegan in 1964 with the abandonment of ResalePrice Maintenance.8 The ways in which theseUK–US differences in retail capital concentrationand retailer-manufacturer balance of power rela-tions affect private label trading are best under-stood through an examination of some of the restruc-turing features associated with these differences.

The profits achieved by the leading UK food retail-ers have been very high in international terms. Thenet profit margins achieved by the top three UKfood retailers are between 7% and 9%.9 These havelargely been resultant from the decline in competi-tiveness within UK food retailing is associated withthe growth of oligopoly. Particularly during the1980s, these large profits allowed the retailers to in-vest heavily in centralized warehousing and distrib-ution systems10 and information technology such asElectronic Point of Sale systems.11 Investment insuch systems enabled UK retailers to take morecontrol over their food supply chains, with manu-facturers being increasingly expected to fit in withthese systems. The ability of the retailers to controldistribution through centralized logistics manage-ment and the power to access information concern-ing the sale of commodities through their stores viathe EPoS systems logically paved the way for thedevelopment of their own private label products.12

This is because, first, the effective management ofprivate label programs is dependent upon the retail-ers’ ability to take responsibility of the productsfrom the location of their production to the site oftheir retail, and second, sales information generat-ed from the EPoS data gives retailers the power toidentify food categories possessing the potential forprivate label development. Such increased powerand control over the functions of distribution andexchange has not been achieved to the same effectby US food retailers.

Net profit margins attained by US retailers haverarely exceeded 1%.13 This is largely due to thehighly competitive nature of US food retailing. Cou-pled with the debt problems incurred by many lead-ing US retailers as a result of the leveraged buyouts(LBOs) of the mid to late-1980s, the low profitsmeant that investment in information technologyand distribution was generally stalled in US food re-

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tailing.14 And, while some of the larger retailershave more recently developed some sophisticated lo-gistics systems,15 it has been argued that these re-tailers have failed to integrate their use of such sys-tems into their management strategies as effectivelyas food retailers in the UK.16 Overall, US retailersappear to have been slower in taking control oftheir supply chains than their UK counterparts.This, coupled with the greater relative power offood manufacturing in the US, suggests that US re-tailers have had more difficulty in laying the foun-dations for the development of sophisticated privatelabel programs than retailers in the UK.

Private Label Trading in the UK and US

These differences in retail restructuring betweenthe UK and US have paved the way, then, for con-trasting levels of private label development. In theUK food retailers have been putting great pressureon secondary and tertiary manufacturers’ brandswith their private labels arguably since the early1980s.17 In 1992, the share taken by private labelsof the UK Fast Moving Consumer Goods market*

(by value) was 37.1%.18 This contrasts stronglywith the level of private label trading in the USA,where retailers’ private labels accounted for only13.7%† of the US grocery market in 1992.19 So,while private labels are exerting some pressure onmanufacturers’ brands in the USA, their effects ap-pear to be weaker than in the UK.

In both national economies private labels have along history.20 However, the concern here is withtheir development over the last two decades. Bothin the UK and US, retailers’ private labels in the1970s and early 1980s were, for the most part,generics.21 These generics were essentially cheap,basic commodities in plain packaging which bore noreference to the retailing company through whichthey were sold.22 The products themselves compet-ed with manufacturers’ brands on price rather than

*From the Nielsen definition of Fast Moving Consumer Goods which

is based upon three categories of groceries: personal care, household

goods, and food and beverages.†This figure is taken from an IRI Infoscan scan of 202 general prod-

uct categories sold through grocery retailing outlets.

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on quality. In both countries, the strategy of sellinggenerics fitted in comfortably with the “pile it high,sell it cheap” marketing philosophy of most retail-ers at that time. Only Marks and Spencer andSainsbury, of the major food retailers in the UK,refrained from such price-based product and ser-vice competition.22

In the mid-1980s, private labels in the UK and USbegan to change and were increasingly targeted atmore middle and upper class consumers. Thesemore up-market products began to compete withmanufacturers’ brands on the grounds of quality aswell as price.23 Furthermore, this quality-basedcompetition meant that retailers began to sell pri-vate labels in premium and highly differentiatedfood categories and segments, such as dairy icecream and pasta sauce, in addition to their contin-ued development of more basic commodities, e.g.,canned soup and standard (or economy) ice cream.This overall shift accompanied moves by most foodretailers in both countries towards a more quality-based overall competition. There were, however,some marked differences in this shift in private la-bel trading between the UK and US. The main con-trast concerns the way in which UK food retailersactually pioneered the development of some prod-uct categories which had not been developed beforeby manufacturers in the branded marketplace.Such new retailer-developed product groups havemainly been in high-margin categories, like chilled,prepared convenience foods.24 Such innovation hasbeen absent in US food retailing. Moreover, theways in which the private labels have been brandedare different in the UK than they are in the US. Inthe UK most private labels bear the name of the re-tailer on their packaging, whereas in the US con-trolled labels are prevalent. These controlled labelsrarely feature the corporate name of the retailerand are instead marked by an invented brand namewhich is often used as private labels by more thanone retailing chain. This implies that there is notsuch a fluid transferability of corporate name be-tween retailing service and private label product inthe US as there is in the UK.

In the early to mid-1990s, the character of privatelabel trading has been changing in both nationaleconomies. In the UK, most food retailers are sell-

ing some ranges of more price-based private labelsin addition to their continued development of up-market products.25 This is very much associatedwith a competitive response to the entrance of theEuropean deep discounters to the UK retailing mar-ket.26 In the US, some leading food retailers are be-ginning to explore new avenues in their private la-bel product and packaging design following both areduction in their debt burdens from the LBOs andrecent management changes. However, it appearsthat these initial levels of innovation still fall farshort of those reached by the leading UK food re-tailers. The third and fourth sections below exam-ine the role played by innovation and new productideas in the development of UK and US private la-bels and the way in which such innovation and de-velopment is organized within contrasting retailer–manufacturer supply chains in the two countries.

Sources of New Product Ideas and Innovationfor Private Labels

The UK

As UK retailers’ private labels in the 1970s werevery basic commodities which competed with manu-facturers’ brands on price only, innovation on thepart of the food retailers was then practically non-existent. With the advent of more quality-oriented,arguably retailer-branded, private labels duringthe mid-1980s, this situation changed and the retail-ers became more involved in the development ofnew ideas for their product ranges. However, as theMarketing Director of UK Manufacturer M re-counted, the inspiration for new private label prod-uct ideas was derived initially from existing manu-facturers’ brands:

When [private label] moved from the generic, so that onewasn’t just selling an individual product, one was sellingthe name of the retailer as the guarantee, then increas-ingly the question of quality came into it. And, once aquality measurement came in, then it was a question ofwhere was your benchmark. And . . . initially the bench-mark was the brand. In the past it had been the bench-

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mark of the brand on a price basis and increasingly it be-came the benchmark of the brand on a quality basis (In-terview: October 1994).

This situation whereby retailers copy the productdevelopment initiated by the manufacturers hascontinued into the 1990s. However, as introducedearlier, retailers also entered into the sphere ofproduct innovation whereby they began to launchnew private label products in categories or segmentswhich had not previously been developed by foodmanufacturers.27 The Marketing Director of UKManufacturer M captures this shift towards retail-er-driven private label product innovation in hisexplanation that:

Gradually you got to the situation whereby the retailer wasdoing some of the innovation with his label and actuallybeating the brands to it. So you had a progression. You ba-sically had an economy private label system situationwhich was based on price. You then moved to a retailerwanting to more strongly put his label on and market theproduct and match the brand. And then finally, in thecurrent stages, you have a retailer who says “I want to beahead of the market. Forget the brands, because thebrands aren’t doing this product, or the major brandsaren’t doing this product.” (Interview: October 1994)

So, while copy-cat private labels certainly did notdisappear from the UK market, the retailers be-came much more innovative from the mid-1980s.Acknowledging this shift, I want to consider thesources of the UK retailers’ product ideas and theprocesses through which these ideas have been de-veloped. First, though, it is important to contextu-alize this discussion in a recognition of some of theoverall changes in food production and consump-tion taking place during and immediately followingthe 1980s.

Bowlby et al. review some of the shifts in patternsof consumption in Britain during the 1980s andsummarize these shifts as being increasing con-sumer spending, increasing demand for qualitygoods, increasing diversification of consumer mar-kets, and increasing adherence to ‘lifestyle’ con-sumption.28 Drawing on the work of Murray29 andTotterdill,30 they argue that such changes in con-

sumption have been reflexively developed through asimilar shift from Fordist to Post-Fordist and flexi-bly specialised retailing forms and retailer–supplierrelationships. It can be argued, then, that massproduction and mass consumption of food com-modities has been, and continues to be, replaced bymore innovative and highly differentiated forms offood production and retailing which link to theshifts in patterns of consumption outlines above.While the applicability of the flexible specializationmodel to food retailer–supplier relations is ques-tioned by Bowlby et al, it is useful to recognize thatthe general move away from mass production, dis-tribution, and consumption did encapsulate UKfood manufacturing and retailing in the 1980s. Thisis part of a wider, more global change explored byHarvey31 and Lash and Urry.32 Lash and Urry ar-gue that commodities and services in advanced cap-italist economies are becoming increasingly design-intensive, with more and more emphasis being laidupon the research and development of productsand the image-based nature of both products andservices. It is against this socio-economic back-dropthat retailer innovation in the area of private labeldevelopment is best viewed.

Prior to the mid-1980s in the UK, product innova-tion and the creation of highly differentiated foodcategories was the preserve of the food manufactur-ing giants. However, since the mid-1980s, alongwith a more sophisticated approach to the design oftheir service space33 and an increase in the market-ing of this service through advertising,34 retailershave invaded this preserve through their productinnovation for private labels. This innovation hastherefore been a refined way of competing withmanufacturers’ brands and increasing retailers’profits. However, in order to achieve success withthis product innovation, UK retailers have had tolink the development of their private labels tochanging patterns of consumption as effectively asthe manufacturers. This has meant that these re-tailers have had to develop an understanding offood consumption which goes beyond their special-ist knowledge of the retailing function alone. So,how have they accessed information on food con-sumption patterns and how has this fostered the de-velopment of new product ideas?

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The UK retailers have very efficiently used the in-formation generated from their EPoS systems in or-der to discern trends in food consumption.35 Assuch, investment in this particular branch of infor-mation technology by food retailers, aided by theirlarge profits, has enabled them to gain both valu-able knowledge concerning the volume and types ofproducts being consumed and access to informationregarding the broad social groupings of the peopleconsuming them. This has allowed them to identifykey areas for the development of new private la-bels, which is backed up by data received fromNielsen and AGB and also the use of trade market-ing personnel (whose prime function it is to re-search consumption patterns). This in itself,though, has not been sufficient to induce innova-tion. Ideas from individuals, such as the wives of di-rectors from UK Retailer A, have been used in thedevelopment of new flavors for various premiumprivate labels. Arguably the most important sourceof new ideas for private labels, though, is actuallythe food manufacturing industry, or rather, the col-laborative relationships which the retailers forgewith their chosen suppliers of their private labelproducts. Most UK food retailers do not have thefacilities to manufacture their own private labelproducts, so they rely instead upon outside sup-pliers.

The ways in which UK private label supply chainsare both initiated and organized are discussed indetail elsewhere.36 For the purposes of this article,though, it is important to note that there appear tobe two polar models of UK private label supplychain. These are, first, a relatively arms-lengthsupply relationship which normally involves manu-facturers of basic private label commodities. Thesemanufacturers have often been pushed out of thebranded marketplace by both leading manufactur-ers’ brands and retailers’ private labels. The re-tailers in this case are therefore making use of theexcess capacity of these manufacturers for the pur-poses of private label production. The second typeis a more interactive supply relationship which isgenerally initiated through the retailers’ proactiveselection of appropriate suppliers for more premi-um and differentiated private label products. Whilethis categorization is simplistic, it is useful here in-sofar as it serves to contextualize private label

product development within different forms of sup-ply relationship.

In the case of the first type of UK private labelsupply chain, discussion of new ideas is almost ab-sent and the private labels produced out of such arelationship are very often copycats of existingmanufacturers’ brands. Product innovation forprivate labels, then, is more commonly fosteredthrough the second type of supply relationship. Inthis case, the manufacturer is usually a producer ofmore premium products and therefore possessesnot only the facilities to manufacture highly differ-entiated products, but also a specialist knowledge ofthat particular product field. UK retailers wishingto produce new and innovative private label prod-ucts therefore harness this specialist knowledge andtransfer it into new ideas which are eventually soldunder their own corporate names rather than thoseof the manufacturers. The processes through whichthis specialist knowledge is harnessed and the wayin which ideas are generated through social rela-tions are complex and still relate very much to thechanging patterns of food consumption outlinedabove. This is exemplified through the way in whichUK Retailer F collaborates with its suppliers of pre-mium private label products in order to generatenew product ideas. As the Sales and Marketing Di-rector for UK Manufacturer I, a supplier of privatelabel for UK Retailer F, recounts:

They wanted a new range of pasta sauces, so [Retailer F]’schefs and my chef and myself and a selector went out to-gether and went to the best Italian restaurants in Londonand tested sauces for lunch and dinner over a period of aweek and selected the products that we wanted to make.The chefs then made the sauces fresh in the kitchen andthese sauces then became the benchmark of the sauces wehad to make in the factory. (Interview: September 1993)

This particular case is interesting because the in-spiration for new ideas comes from the restauranttrade, which is acknowledged as being the seedbedfor many innovative products sold through super-markets. Whereas in the past the ideas from therestaurant trade were picked up by the manufac-turers and then by the retailers, UK Retailer F isactually moving ahead of the manufacturers. How-ever, they are still using the expertise of the manu-

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facturers’ personnel to help them to develop theseideas. Furthermore, what is also interesting is theway in which the occupational hierarchy is virtu-ally collapsed within the retailer–suppler relation-ship in a way that favours the production of well-researched ideas for new products. However, itshould be noted that while the hierarchy is col-lapsed in this particular exercise, each individualis still playing out their role within the product de-velopment process. As such, representatives fromboth the retailer and the supplier, from top levelmanagement to expert chefs and product samplers,all actually become consumers of the restaurant in-dustry themselves in order to spark off ideas thatwould not be possible from the analysis of marketresearch data alone. This process is deeply embed-ded in networks of interpersonal relations, the im-portance of which is stressed by sociologists such asBlock,37 Granovetter,38 and Zukin and DiMaggio.39

The business between UK Retailer F and UK Manu-facturer I concerning private label pasta sauce wasinitiated by virtue of a long history of very closepersonal relationships which have developed be-tween the directors from both companies. It shouldbe stressed, however, that the nature of this par-ticular retailer–supplier partnership is very muchspecific to the practices of UK Retailer F. Most ofthe other UK food retailers generate new productideas mainly through discussions with suppliers and a use of more conventional market researchmethods.

What these cases appear to show is that sources ofideas and innovation for new private label productsare neither purely production-led nor purely de-mand-led. Rather, they are borne out of the dialec-tical relationship between the two. However, whileit is useful to think of this production–consumptiondialectic in the context of product innovation, it ismisleading to theorise product innovation onlythrough a conceptualisation of this dialectic in theabstract. Instead, I argue that changing societaltastes and consumer cultures are internalized byparticular retailers and suppliers through their re-lationships with one another. Individuals operatingin these supply relationships interpret these societaland cultural changes, sometimes through the use oftechnology, in particular ways which are informedby their competitive dispositions, which in turn are

produced out of the corporate and competitive posi-tions they occupy and their own personal histories.These interpretations are then discussed and re-worked into new ideas for the development of pri-vate label product lines and programs. In thissense, new ideas private labels are produced out ofan “internalization” of “external” social, culturaland economic change by corporations which is con-ducted through complex, socially-embedded organi-sational processes at the retailer–supplier interface(using the ideas of Beck and Moore,40 and Berg41).

An important point to note is the way in which col-laboration between UK retailers and suppliers con-cerning new product development for private labelsis very much ‘administered’ by the retailers (to bor-row a term used by Dawson and Shaw,42 drawingon the work of McCammon43). The ideas are alwaysfor the retailers’ products and primarily for the re-tailers’ profit gain. This means that while the sup-pliers are also maintaining profitability throughprivate label production, their business is never to-tally secured or formally bound by written con-tracts. The exchange of ideas for new products,then, embodies a certain amount of risk for theseprivate label suppliers. As the National AccountsController of UK Manufacturer E, a supplier ofpremium private label ice cream, explains,

One is pretty sure now and again that they’ll take one ofyour ideas and give it to someone else to do, but that’s arisk you take. That’s how things work in private label. (In-terview: November 1993)

Finally, with regard to ideas for new private labelproducts in the UK, their institutionalization isvery much bound up in wider conditions of compe-tition. Competitive forces associated with the threatfrom new entrants to food retailing can change thepropensity of retailers to be innovative with theirprivate labels. This is illustrated by the move ofseveral UK food retailers towards the sale of morelow price-based private labels in response to the re-cent competitive threat posed by the European deepdiscounting chains (see the second section above).While this has not wiped out retailer-led product in-novation in high margin categories, it has redirect-ed at least some of the retailers’ attention to an are-na of new product development which has a greater

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emphasis on low cost. Overall, then, it is suggestedthat both the power and ability of UK retailers tobecome involved in innovation and ideas for privatelabel are very much bound up in wider issues of re-tail restructuring, competitive forces and changesin consumption patterns.

The US

As it was explained in the second section, there ap-pears to have been an absence of retailer innova-tion in the development of private label products inthe US. So, while patterns of US food consumptionare changing in the same ways as those of the UK, itappears that it has been the food manufacturerswho have met the consumer demand for differenti-ated and high-quality food products. This is not tosay that US retailers’ private labels have not beenhigh quality food products since the 1980s. Rather,that they have always copied the product develop-ment initiated by the food manufacturers in theirbid to meet consumer demand. As such, processeswhich characterize UK private label innovation arepractically non-existent in the US. Instead, thesource of ideas for US private labels is the bench-mark set by the quality of the leading manufactur-ers’ brand in each category. As the Associate Prod-uct Manager of Private Label Brands for USManufacturer G explains:

In the United States private label, for the most part, hasbeen a copy-cat made where companies target the top itemsin each segment. True innovation probably hasn’t existedas you know it in the UK or even in Canada. (Interview:March 1994)

The Corporate Grocery Merchandising Managerof US Retailer H reiterates this view when he ex-plains that the US food manufacturers are ahead ofthe US retailers in terms of what the consumerwants and explains that this is because they haveboth the staff and the research facilities availableto them in order to do so. The retailers, he says,just do not possess the equivalant facilities. All thisis not to argue, though, that food retailers in theUS are completely passive in the developmentprocess for new private labels. On the contrary,

the increasing degree of access to sales informationobtained by retailers through their use of EPoSsystems and their purchase of Nielsen and IRImarket research data means that they are becom-ing progressively more aware of the changing pat-terns of US food consumption (Interview with theEditor of The Progressive Grocer magazine, April1994). However, the fact that this information isused only to enable them to identify which leadingmanufacturers’ brands to imitate is suggested bythis quote from the Vice President and Director ofGrocery Merchandising for US Retailer E who ex-plains that,

Private label is an emulator. We do not build a market, butwe are a copy-cat. And so therefore we watch the marketvery closely. (Interview: March, 1994)

Overall, US retailers have not had as much powerto become innovative with private labels as the re-tailers in the UK. First, investment in informationtechnology, which enables easy access to sales infor-mation, was stalled by both the low profits achievedby the multitude of regional retailers and the debtburdens of the LBOed companies. Second, invest-ment in additional personnel to research consump-tion patterns would have been stalled for similarreasons. Third, the greater power of food manufac-turers’ brands in relation to retailers’ private labelsin the US has made it difficult for these private la-bels to compete in the food market as effectively asin the UK. Related to this, the supply chains thatproduce these private labels are not made up ofsuch interactive, collaborative relationships as theyare in the UK. As such, US food retailers tend notto administer such coordinated relationships withtheir manufacturing suppliers. Discussion aboutideas for new private label products is thereforekept relatively minimal.

Rather than a high level of collaboration be-tween retailers and suppliers concerning privatelabel ideas, then, there are other forms of retail-er–supplier relationship in which product develop-ment is institutionalized. In the soup industry, forexample, there is only one major, national privatelabel supplier who serves almost all of the food re-tailers in the US. All retailers are supplied withexactly the same product, which is a copy-cat of

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the leading brand in the US (Campbell’s) and dis-cussion between the two parties concerning prod-uct innovation is virtually absent. In the ice creamcategory, several US food retailers are actually in-tegrated into their own production facilities, givingrise to a more “corporate” supply channel (usingDawson and Shaw’s supply chain categoriza-tion44). In addition to this, there are many medi-um-sized retailers who utilize buying cooperativesto organize the production of private labels. How-ever, despite the existence of some closer supplyrelationships between retailers and local produc-ers, almost all of these US private label supplysituations rarely involve any discussion of newproduct development in the way that it occurs inthe UK.

Despite this apparent absence of true innovationin retailers’ private label development, the situa-tion is changing. There are some cases in which re-tailers have recently made headway into the sphereof product innovation. However, rather than devel-op entirely new product categories or beat manu-facturers to new product ideas, these retailers arestill following the lead taken by the manufacturersto a large extent. An example of this is afforded bythe development of new flavours of ice cream by USRetailer C (who has its own production facilities).As the Manager of Corporate Grocery Merchandis-ing for this retailer explains,

We know by watching people like Ben and Jerry’s and Haa-gen-Dazs what are the trendy flavors. Now we won’t copyit. We’ll be innovative to come up with some new, uniqueflavors, but keeping in mind what has been successful forthem and what the consumer is looking for . . . We will testand analyse to know what the other guys are doing. Butto blatantly copy? No, that’s not our objective. (Interview:March 1994)

This situation arguably embodies the highest de-gree of innovation occurring within US private labeldevelopment. It can thus be viewed as a somewhattentative move towards the UK system. Interesting-ly, this particular case is a part of wider corporatechanges going on within US Retailer C. These arewrapped up in this company’s post-LBO manage-ment modifications instigated by their new ChiefExecutive, which supports the view that private la-

bel innovation is very much bound up in widerchanges in retailing competition.

One final point to add concerns the way in whichsome US food retailers are harnessing the innova-tive capacity of foreign retailers in the area of pri-vate label development. Increasingly, there are sev-eral food categories in which relatively innovativeprivate label products are being sold in the US.However, this is not to argue that the US retailersthemselves are becoming innovative with their pri-vate label development programmes. Rather, sever-al US supermarket chains are sourcing private la-bels from abroad, particularly from the Canadianretailer, Loblaw, which is renowned for its sale ofup-market, innovative private label products underthe name of “President’s Choice.”45 These privatelabels are sourced through brand licensing agree-ments to US retailers. In other words, through amore “contractual” supply relationship (using Daw-son and Shaw’s terminology once again). This ap-pears to be an internationalization of private labelstrategic ideas, then, rather than an increase in theinnovative capacity of US food retailers. Again, thisprocess is indicative of the embeddedness of privatelabel development in wider, and more global, com-petitive conditions.

It can be concluded, then, that the absence of pri-vate label innovation on the part of the retailers inthe US is very much bound up in issues of retail re-structuring, power relations in the food production-consumption chain and the associated conditions ofretailing competition. Furthermore, it is suggestedthat food retailers in the USA have been less em-powered to adapt their private labels directly tochanging patterns of consumption than their UKcounterparts. Instead, they have been limited tofollowing the innovative leads taken by the stilldominant US food manufacturers.

New Product Development: Putting Ideasinto Action

Following the discussion of innovation and thesources of new product ideas presented above, Iwant now to focus more upon the development ofthese ideas, however innovative, by retailers andtheir suppliers in both the UK and US.

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The UK

The leading food retailers in the UK have investedheavily in large-scale facilities, such as kitchens andlaboratories, specifically for the development ofprivate label products. These facilities are backedup by teams of technologists and home economistswho work solely on the development of private labelfood products. The history of UK retailers’ foodtechnology departments goes back a long way. Forexample, Sainsbury was the first to establish onein the late 1920s46 and Marks and Spencer set oneup in the late 1940s.47 However, as Wrigley notes,the employment of food technologists by the majorUK food retailers doubled between 1975 and1985.48 The increase in investment in such re-sources and labour has undoubtedly been fuelledby the retailers’ large profits in an attempt to takegreater control over the functions of own-labelproduct development. As such, relationships withthe manufacturers who eventually produce theproducts in their factories involve close relationsbetween the technical departments of both the re-tailers and the suppliers. This is the case whetherthe relationships are highly collaborative or merelycooperative and therefore applies to the develop-ment of most product categories. So, whether theproduct is a completely new idea or a copy of amanufacturers’ brand, recipes are developed joint-ly. In the UK, then, this is an activity in which theretailers are heavily involved49 (the productionprocess itself, carried out by the manufacturers, isalso very closely monitored by the retailers). Thisinvolves regular visits by the retailers’ technicalstaff to the suppliers’ factories. This function, likethose of buying50 and distribution51 is very muchcentralized. The involvement in the technical devel-opment of new products by retailers is, at least inpart, due to the 1990 Food Safety Act which confersthe legal responsibility for the safety of private la-bel products upon the retailers.52 Added to this,though, is the issue of retailer image and identity.With the growth in retailer branding strategies, ofwhich retailers’ private labels are a part,53 thename of the retailing corporation on the products’packaging means that the quality of a retailer’s pri-vate labels will be associated with the overall retail-ing service and product range offered by that par-

ticular company. As the Canned Soup Buyer for UKRetailer D suggests,

I think that you’re more likely to work together to developand get the right products . . . because if there’s a problemwith the quality of a [private] label product, it’s [our] namethat’s on it. . . . (Interview: June 1994)

This links in very much with Dawson and Shaw’sview that “retail label development has increasedretailer involvement in traditional manufacturerareas of new product development, product testingand “brand” (retail label and store) advertising”.54

As such, it is suggested that the high level of in-volvement of UK retailers in the product develop-ment process of private labels is strongly linked tothe shift in retailing, since the mid-1980s, towardsmore quality-oriented and image-based competi-tion. But what of the different supply relationshipswithin which this product development takes place?

As noted in the third section above, private labelsin basic commodity categories are normally devel-oped through more arms-length, though still admin-istered, supply relationships.55 These relationshipsare particularly common to the supply of private la-bels which are copycats of existing manufacturers’brands. In this case, as has been explained above,discussion of product development is kept to a mini-mum. Instead, retailers devise a set of written prod-uct specifications for the manufacturers to follow inthe production of the commodities. While this rela-tionship is not purely transactional, it is moreprice-based than supply relationships involving thedevelopment of more premium and differentiatedprivate labels. Furthermore, supplies of these morebasic, copycat private labels are often spreadamong several manufacturers. This implies that theproduct development process, while being co-ordi-nated, is not necessarily collaborative.

For the more premium and differentiated privatelabel products, the new product developmentprocesses take place within much more interactiveretailer-supplier relationships.56 These collabora-tive relationships conform very much to those epito-mized by Best57 as belonging to the “new competi-tion.” Within these relationships, which arecommon to private label premium ice cream andpast sauce, both discussion about updating product

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ideas and the recipe development process itself arecontinually carried out jointly by the retailers andsuppliers. Furthermore, exclusive supply relation-ships whereby retailers often choose only one man-ufacturer to supply a particular product are oftenan arrangement for such high quality private la-bels. As the Marketing Director of UK Manufactur-er M explains,

We have very few customers and therefore we can tend totreat them as individuals and they can feel that we’re al-most like their own manufacturing unit. (Interview: Octo-ber 1994)

Such a close relationship, suggest Dawson andShaw,58 is more likely to meet the innovative needsof the retailer and conforms very much to Bowlbyet al.’s notion of a post-Fordist retailer–supplier re-lationship. This is not to argue, though, that suchrelationships do not bear some element of risk andcompetitive tension. Rather, so-called partnershipsbetween buyers and suppliers in most industriesembody at least some degree of adversarialism.59

Overall, the important point to note is that the de-velopment of most new private label products isvery much retailer coordinated. Because the ideasfor the new products often belong to the retailers inthe UK, they commonly play a very active role inthe development of these products. This has beenaided by their investment in both facilities and staffto control this activity.

The US

While some of the leading US food retailers do havesome facilities and staff devoted to the developmentof their private label products, these are certainlynot as extensive as those owned and used by the UKfood retailers. The Corporate Grocery Merchandis-ing Manager for US Retailer H noted some of theseUK–US differences when he visited the UK on busi-ness. He recounts that,

We went to London and spent a few days with the Sains-bury people. They have more people involved in their dairydepartment than we have in our entire private label de-partment because they control and work closely with the

manufacturers’ technical departments. And, the brandsdon’t have the power there that they do here. (Interview:April 1994)

This quote illustrates the way in which this differ-ence in facilities devoted to private label productdevelopment is rooted in broader differences inboth retailer–supplier relationships and the powerof manufacturers’ brands. Investment in such re-sources for product development by US retailerswould also have been adversely affected by lowprofits and the debt problems associated withLBOs. What this implies is a lower level of involve-ment in the technical development of private labelproducts on the part of the US food retailers com-pared to the food retailers in the UK. However, thisis not to suggest that some retailers do not play arole in the product development process. Retailerswho have their own production facilities for someproduct categories obviously take over complete re-sponsibility in this area. In addition, where thebenchmark for the product quality is set as beingthe leading manufacturers’ brand, retailers very of-ten have sufficient knowledge and resources to de-velop the specifications for this product and thentest the suppliers’ product against these specifica-tions. This situation gives rise to a similar type ofsupply relationship to the coordinated, though non-collaborative, inter-firm channel for basic privatelabels in the UK. In the case of private label cannedsoup, though, it is the manufacturer who carriesout most, if not all, of the new product developmentfunctions. So far as the medium-sized retailers whouse the buying and technical facilities of buying co-operatives are concerned, it is the co-operativesand the suppliers who between them develop speci-fications for, and monitor the quality of, new prod-ucts, and these are almost always copy-cat privatelabels. The brand licensing agreements from Cana-da also involve no US retailer involvement in theproduct development process at all. So, what doesthis mean for the retailer–manufacturer relation-ships in which private label new product develop-ment takes place?

Overall, private label supply relationships in theUS are diverse in character (see Hughes, forthcom-ing). What is important to note here, though, is theabsence of collaboration between retailers and sup-

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pliers concerning the development of new privatelabel products. Even in the case of vertical integra-tion for the production of premium private label icecream, dialogue between the retailing buyers andthe product development staff is minimal. In thissituation, the links between the retailing and manu-facturing functions are less interactive than thosewithin some of the close retailer-supplier relation-ships for premium private labels in the UK. Thisconforms to Sayer’s view that vertical integrationdoes not necessarily imply close relations betweenthe different economic functions.60

The lower level of retailer involvement in the de-velopment of private label products in the US com-pared to that in the UK is also embedded within thenature of the US food industry. In general, US foodretailers have been slower to take control of manytraditional manufacturing functions, including ad-vertising, the branding of private label productsand private label product innovation. It is argued,then, that the lack of involvement in product devel-opment for private labels is linked to the absence ofan overall shift towards more proactive, retailer-ledprivate label strategy. Such a shift has been pre-vented by both the nature of retail restructuringand the continued dominance of the food manufac-turers in the US (as discussed in the second sectionabove). This contrasts greatly with the US.

Conclusions

What is evident from the arguments in this paper isthat new product development for private labels ismuch more retailer-led in the UK than it is in theUSA. The supply chains in which such new productdevelopment is fostered also differ between the twocountries. Collaboration between retailers and sup-pliers concerning the ideas for new products, andthe development of these ideas, is much more com-mon in the UK than it is in the US, though if only

really occurs in the development of more quality-based private labels. Because of this greater collab-oration within UK private label supply chains, thenature of the social relations which characterize re-tailer–manufacturer relations in this country arevery different to those in the US. The role playedby close personal relationships in forging interac-tive retailer–supplier relations for high quality pri-vate labels, for example, is much more central inthe UK than it is in the US. Overall, the contrast inthe level of retailer involvement in the private labelproduct development process between the UK andUS is linked to the greater control exercised by UKretailers over many of the functions previously ad-ministered by food manufacturers. These includeadvertising, market research, branding, and thetechnical development of food products. As such,retailers in the UK appear to have a much strongerlink to the changing patterns of food product con-sumption than their US counterparts.

This paper argues that the differences between theUK and US concerning the capacity for innovationand the ability to develop new product ideas can onlybe understood in the context of the wider conditionsof competition in which these specific proc-esses areembedded. As such, power relations operating be-tween the state, retailers, manufacturers, and con-sumers are recognized to have favored retailers inthe UK more than they have in the USA. This haspaved the way for the more innovative private labelstrategy developed in the national economy of theformer. In this sense, the way in which private labelinnovation and development is embedded withinparticular geographic contexts is of considerable im-portance. Furthermore, it can be argued that thecontrasting character of retailer–manufacturer rela-tions resulting from this difference in private labeldevelopment between the UK and US must also beunderstood for the way in which it is shaped by eco-nomic processes operating geographically.

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Appendix 1. Market Shares of UK and US Food Retailers’ Private Labels (by Value) in 1992 for ThreeSelected Product Categories (from Hughes, forthcoming).

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Appendix 2. The Concentration of Food Retail Ca;pital in the UK and USA, 1992.

Table I. Retailers’ Private Label Shares (by Value) inThree Selected UK Product Categories, 1992.

Retailers’ PrivateProduct Category Label Share (%)

Canned Soup 12.2a

Take-Home Ice Cream 44.9b

Pasta Sauce 25.0c

aSource: Nielsen Retail Audit figures, published in “Campbell’s

94/95 Soup Market Review.”bSource: Wall’s estimates, published in EIU Retail Business 424,

June 1993, p. 15.cSource: Retail Business and trade estimates, published in EIU

Retail Business 423, May 193, p. 57.

Table II. Retailers’ Private Label Shares (% Value)in Three Selected US Product Categories, 1992.

(Source: Private Label, 1992, November/December).

Retailers’ PrivateProduct Category Label Share

Soupa 5.3Take-home ice cream 27.6Pasta sauce 3.2

aThis category includes dried soups. The private label market

share for canned soups is estimated to be nearer 8% (Source:

Interview with Heinz USA).

Table III. Leading UK Food Retailers and their Shares(by Value) of the UK Grocery Market,a 1992.

Supermarket Chain Market Share (%)

Sainsburyb 15.4Tesco 13.0Argyllc 9.3Asdad 8.1Gatewaye 5.4Kwik Save 4.9Marks and Spencer (UK Food) 4.0

Source: Institute of Grocery Distribution, “Press Information,”

1994.aGrocery market here constitutes a restructured IGD definition of

the market using CSO data. This includes all food retailers (and

specialist retailers like butchers and bakers), plus Marks and

Spencer food sales. Grocery retailers’ petrol sales are excluded.bIncludes J. Sainsbury and Savacentre.cIncludes Safeway, Lo-Cost, and Presto.dIncludes Asda and Dales.eIncludes Gateway, Somerfield, Food Giant, and Solo.

Table IV. Leading US Food Retailers and Their Shares(by Value) of the US Grocery Market, 1992.

Supermarket Chain Market Share (%)

Kroger Company 5.8American Stores Company 5.0Safeway Inc. 4.0Great Atlantic and Pacific 2.7

Tea Company (A&P)Winn-Dixie Stores Inc. 2.7Albertson’s, Inc. 2.7Food Lion, Inc. 1.9Publix Super Markets, Inc. 1.7Vons Companies, Inc. 1.5Pathmark Stores, Inc. 1.1

(Supermarkets General)

Source: Progressive Grocer, 1994, Stamford, Connecticut.

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