Consumer Choice of Private Label or National Brand: The case of organic and non-organic milk

Introduction Since the 1970s and 1980s, private label products (also known as store brands) have seen great improvements in product quality and large gains in market share. Once considered a low-quality, low-price alternative, some private label products evolved to compete with high-quality, market-leading brands, including organic brands (Burt, 2000). Citing a study in 2006 produced by the Private Label Manufacturers Association (PLMA), Haberkorn (2006) notes that 41 percent of shoppers buy private label goods frequently, up from 36 percent in 2001 and 12 percent in 1991. In 2000, the market share of private label brands exceeded most national brands in about 50 percent of categories, ranking first or second in 131 out of 266 product categories (German, 2001). Dairy is a grocery category where private label has one of the largest market shares. For the 52 weeks ending May 19, 2007, total private label sales across all categories reached $46.5 billion. Among all categories, private label milk led the way with $6.5 billion, followed by bread and baked goods with $3.4 billion, and cheese with $2.9 billion (Progressive Grocer, 11/2007). Citing Information Resources Inc., Barstow (2005) claims that about 60 percent of milk is sold under a store brand. Bonanno and Lopez (2005) say that the expansion of private label in food industry has altered the competition between retailers and manufacturers over the last two decades. These private label trends extend to the organic food market, which itself has rapidly grown annually since early 1990s, and now has a 2007 growth rate of 19 percent. Global organic food market is expected to reach $70.2 billion by the end of 2010 (Research and 2 Markets, 2008). According to the trade journal Gourmet Retailer (2008), private labels are responsible for 17.4 percent of all organic sales, with dairy and produce items having the highest shares. In the market for organic milk, two national brand milk companies, Organic Valley and Horizon Organic, have led the market from the late 1980s. As of May 2007, these two producers provide 75 percent of U.S. organic milk supply (Schultz, 2008). After these two brands, private label organic milk occupies third position nationally, comprising just under 10 percent of the market share (Ihde, 2002). Most research that investigates the private label versus national brand choice focuses on consumers' demographics and perceptions. Richardson, Jain, and Dick (1996) provide an extensive list of factors that affect consumers' private label …