The impact of private label brands on customer loyalty and product category profitability

Purpose – The purpose of this study is to investigate the influence of private label resources possessed by a supermarket retailer on the shopping behavior of loyal customers. The study examines whether or not private label products can help in the overall enhancement of product category performance. Design/methodology/approach – The paper examines the performance of a supermarket retailer in the Northeast United States that operates over 100 stores and generates a total yearly sales volume in excess of $3 billion. Data obtained from the Supermarket's point of sale information were used. The paper then developed a research model from the literature review and used structural equation modeling to analyze the data. Findings – The findings show that overall dollars spent by loyal customers significantly impacted overall profitability. Research limitations/implications – The data collected pertained to the supermarket's grocery department that is comprised of center store dry grocery products, frozen food products, and refrigerated dairy products. Perishable departments such as deli, seafood, meat, bakery, floral, general merchandise, health and beauty care, etc. were not researched in this study. Also, data obtained were from one individual supermarket chain. Practical implications – Although private label products may represent increased profitability for retailers, consumers prefer a full assortment of merchandise; an over emphasis on private label brands may result in diminishing category performance. Originality/value – The paper examines the performance of a supermarket retailer in the Northeast United States that operates over 100 stores and generates a total yearly sales volume in excess of $3 billion. The use of scanner data has value as it measures actual shopping behavior.