Private label

Private label lets a retailer capture the manufacturer's margin as well as its own, and own the customer relationship for that product outright rather than renting it from a brand. Penetration varies enormously by country and by category, and it is generally far higher in discount led grocery than in categories where the brand carries most of the purchase decision, so it is a figure to read from a company's own disclosure rather than to assume across a border.

The economics run against intuition. Own label almost always carries a higher percentage gross margin and a lower shelf price, so a shopper trading down can lift the retailer's reported gross margin while reducing both revenue and cash gross profit. Reported margin expansion in a trade down period is therefore weak evidence of a better business, and the number to ask for is gross profit in cash rather than in percent.

Whether the mix shift dilutes or adds depends on the size of the price gap against the size of the margin gap, so state the condition rather than the conclusion. Cash gross profit per unit rises only where the own label margin is high enough to beat the branded cash profit at the lower price.

Looked at from the supplier's side, own label penetration in a category is the practical ceiling on a brand's pricing power. Many branded manufacturers also produce own label under contract, which dilutes group margin percentage while absorbing fixed factory cost, and practitioners disagree genuinely about whether that is sensible capacity utilisation or slow cannibalisation of the brand sitting next to it on the shelf.