Some retailers choose to have multiple store brand products in the same product category. For example, some major grocery chains (e.g., Safeway), and a few drugstore chains (e.g., Rite Aid), have multiple store brand products in many product categories. These products may have different brand names, or may be differentiated by physical characteristics, label, or package while carrying the same brand name. Our paper investigates why some categories may be more suitable for launching two store brands, whereas in other categories, it may be better to have just one store brand. Our results suggests that the two characteristics that can impact the decision to launch more than one store brand in a category are (1) the relative strength of national brands (concentration in the category), and (2) the cross price sensitivity between the national brands.

Our model uses a game theory based approach where we consider a market consisting of two national brands and one retailer. In our analysis, the single store brand is positioned to compete with the leading national brand, and in the two-store brand case, the store brands are positioned to compete with different national brands. We assume that the retailer will carry two store brands in a product category only if it results in higher profits than when he carries only one national brand. Our analysis suggests that carrying two store brands is profitable only if there is expansion in the base demand for store brands. More importantly, we are more likely to observe two store brands in categories where the national brands are similar in strength and the cross price sensitivity between the national brands is small. Similar strength national brands imply low market concentration in the category, and this points out another difference between store brands and national brands. Although low market concentration may deter national brand entrants, it may be conducive for multiple store brands. Regarding the effect of the price sensitivity between the national brands, prior research suggests that introduction of a store brand is profitable when this price sensitivity is smaller to begin with. And so, this finding seems to hold for two store brands as well. Therefore, relative strength of the national brands seems to be the key factor between having one or two store brands in the category.

We examine the effect of relative strengths of the national brands on the number of store brands in the category using data from a major US supermarket chain. This particular chain controls several store brands that are identifiable both by name and manufacturer’s code. We find that in categories where the share of the leading national brand is higher than the share of the second national brand, it is more likely to find one store brand, and vice versa. In other words, lower concentration implies two store brands. In addition, we find that larger volume categories tend to have two store brands, but the number of national brands does not seem to affect the number of store brands in the category. We also provide anecdotal evidence regarding the effect of cross price sensitivity between the top two national brands on the number of store brands. In three out of four categories, our prediction regarding the relationship between cross price sensitivity and number of store brands holds.

Our analysis has implications for both retailers and national brand manufacturers. Introducing multiple store brands that are positioned to compete with different national brands is a strategic alternative for retailers. This positioning strategy may help the retailer in two ways. First, when store brands target different national brands, it is more likely to extend the base demand for store brands -- which is necessary for profitable multiple store brands. Secondly, targeting may exert pressure on to the national brand manufacturers to offer better trade terms. Our analysis also implies that national brand manufacturers should expect to see two store brand entrants in categories with similar strength national brands -- especially in categories where the top two national brands are distinctively stronger than