The "Invisible" Crisis for Supply Chain Companies: When Supermarkets Start Manufacturing Their Own Products, Are Brands Still Valuable?
Hello everyone, I'm your financial journalist and economist. Today, we're going to discuss a significant business transformation that's already underway, but many people haven't fully realized yet: supermarkets' own brands (also known as "private labels") are quietly taking away business from established brands, while the factories behind them (the supply chain companies) are facing an unprecedented sense of identity anxiety.
If you've been to supermarkets like Sam's Club, Hema, Walmart, or Pangdonglai recently, you've probably noticed a trend. More and more products on the shelves bear logos like "Member’s Mark," "Hema Gongfang," or "Wojixian," rather than familiar names like "Yili," "Mengniu," or "Haitian." What's even more surprising is that these supermarket-branded products are not only cheaper but often of comparable or even better quality.
This brings us to the core question of the day: When supermarkets start producing their own products, do the supply chain companies that have been quietly working in the background still need to invest in their own brands? And if they do, will it be worthwhile?
I'll break down this in-depth analysis into five key points to explain the logic behind this trend in plain language.
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1. Supermarkets Are No Longer Just "Merchants" – They Are Also "Producers"
In the past, the role of supermarkets was simple: you were the manufacturer, and I was the distributor. You produced the goods, and I placed them on the shelves, with both of us making a profit. Supermarkets' own brands, like Walmart's early Huiyi, usually occupied a small space on the shelves and were seen as cheaper options, chosen for their convenience rather than as a reason to visit a particular supermarket.
But now the rules have changed.
Supermarkets like Sam's Club's Member’s Mark, Hema's Gongfang, and JD.com's Qixian are no longer content with just carrying other brands' products. They are starting to define the products themselves.
- From Complement to Main Actor: Private labels have shifted from being fillers to becoming the focal point of attraction and differentiation. For example, Hema's Gongfang has successfully established itself as the go-to for high-quality baked goods, making consumers think, "If I want good bread, I go to Hema."
- From Low Price to Value for Money: The old adage was "cheap means poor quality," but now it's "the same quality, cheaper than elsewhere." Supermarkets like Sam's Club and Hema use their strong purchasing power to directly connect with top-tier factories, cutting out middlemen and brand markups, offering a wide range of frequently purchased items like fresh milk, baked goods, and snacks.
In other words: Supermarkets used to be middlemen; now, they want to be the chief designers. They decide what to sell, how to produce it, how to package it, and even how much to charge for it. This shift has brought the supply chain companies, which were previously in the shadows, into the spotlight, forcing them to become more "invisible" in order to remain competitive.
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2. Why Are Supermarket Brands Cheaper? Because They Eliminate the "Brand Tax"
Many consumers wonder: If the factories and ingredients are the same, why are supermarket brands so much cheaper? Could it be that supermarkets are cutting corners?
The answer is no. The main reason is the reconfiguration of costs:
- Extreme Scale Effects: Traditional brands need to stock thousands of products across the country, catering to different tastes and price ranges. Supermarket brands usually focus on a few best-selling items. With centralized orders, factories can produce at full capacity, significantly reducing the fixed costs per item (such as equipment depreciation and labor).
- Elimination of Massive Brand Marketing Expenses: The price of a big brand's milk includes marketing costs for TV ads, celebrity endorsements, and store entry fees. Supermarket brands don't need these, so the savings are passed on to consumers.
- Shorter Feedback Loops: For example, Walmart quickly identifies issues with the quality of large bottles of milk and adjusts production to lower prices. This fast feedback loop between consumers, supermarkets, and factories is much more efficient than the traditional route through distributors and agents.
In simple terms: Big brands sell a sense of security and recognition, which comes at a cost. Supermarket brands offer certainty and value for money, passing on the savings directly to consumers.
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3. The Dilemma for Supply Chain Companies
For the supply chain companies (like Mengniu supplying milk to Sam's Club or Haitian supplying soy sauce to Aolique), joining the supermarket brand system is a double-edged sword:
- Advantages: Stable orders and high capacity utilization. In years like 2024, when consumer demand isn't as strong and there's pressure on raw milk prices, securing large, stable orders from supermarkets can be a lifesaver. Although the profit margin is lower, it's better than having idle machinery and excess inventory.
- Disadvantages: Brands become "invisible," and companies lose control. Their logos appear on the products, and consumers associate the products with the supermarkets, not the brands themselves. Profits are thin, and they rely heavily on these orders. If supermarkets find cheaper alternatives, they can be easily replaced.
In other words: It's like a top chef who used to own a restaurant and earn from both the food and the brand value; now, working for a Michelin-starred restaurant, the chef's reputation is tied to the restaurant's, not their own.
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4. Branding Isn't Dead, but "Pseudo- Brands" Are Being Eliminated
The article highlights that traditional brands (NB) aren't declining; the real threat comes from those brands that are in the middle. Consumer goods can be divided into two categories:
- Low-Involvement Products (like milk, tissues, basic condiments): These are highly standardized, and consumers can judge quality based on price. In these cases, the reputation of the distributor (supermarket) trumps the brand. Supermarket brands can easily replace traditional brands.
- High-Involvement Products (like sports shoes, cosmetics, baby products, luxury liquor): These require more expertise, and consumers rely on brands for identity, credibility, and emotional connection. In these categories, traditional brands still hold the upper hand.
Therefore, the brands that are truly at risk are the mediocre ones: Those without significant technological advantages or unique features, in highly mature markets where consumers don't need much education. These brands rely on extensive advertising but lack genuine product value.
In simple terms: Brands like Moutai and Coca-Cola remain strong because they represent their categories. However, second-tier brands that rely on advertising are being overshadowed by supermarket brands.
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5. The Path Forward for Supply Chain Companies
So, what should supply chain companies do? Are they doomed to just be contractors?
The article offers a positive outlook: Contracting work is no longer a sign of inferiority; strong distributors can be a platform to establish their brands.
- **Build a Reputation as a "Source Manufacturer": Companies like Mougao Di, which started by contracting for Decathlon, later built their own brand by showcasing their expertise as a manufacturer.
- Shift from Selling Products to Selling Expertise: Instead of focusing on consumer brand recognition, they should highlight their manufacturing capabilities to both businesses and consumers.
- Differentiate for Survival: If they can't stand out in standardized categories, they must focus on high-involvement areas, either by offering exceptional value for money or by becoming experts in their niche.
In other words: Supply chain companies need to move from being unknown players to recognized leaders. They don't need to be well-known to everyone, but they need to establish their reputation among industry insiders and discerning consumers.
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Conclusion
This news reveals a profound shift in the business landscape: the value of a brand is shifting from the manufacturer to the distributor. For consumers, this means better products at lower prices. For supermarkets, it presents opportunities to become brand creators with more control and profit. For supply chain companies, it's both a challenge and an opportunity. Those that can't innovate or differentiate will be eliminated, while those with strong capabilities and reliable quality can find new ways to succeed.
Remember this: Branding isn't obsolete. What's outdated is the old approach of relying solely on marketing and packaging for brand value. In the future, brands will either be irreplaceable or highly professional, with fewer middle ground options.