There was a time when house brands meant generic packaging and no-frills products. You still see that in some supermarkets where sad-looking bags of cereal with names like "Fruit Rings" or "Frosty Flakes" sit on shelves next to their name-brand counterparts. That's no longer the norm, though, as many house brands look more like high-end products and while they still deliver value, that's not the only reason they exist.
Whole Foods Market (NASDAQ: WFM) has even built an entire store concept around its 365 house brand. The items in that line are cheaper than the name-brand products the chain sells, but they are not the old, grey packaging generics grocery chains once sold.
The same is true for Costco's (NASDAQ: COST) Kirkland brand, whose products mirror the quality of the name brands stocked by the chain.
Now, Wal-Mart's (NYSE:WMT) Sam's Club has reinvigorated and reimagined its own house brand. The membership-based chain has totally redone its once varied array of private-label products, combining them all under a single name.
What is Sam's Club doing?
"At one point, we had 21 private labels," said Sam's Club President of Private Brands Chandra Holt in a press release. "So the first thing I set out to do was to simplify for our members. We now have one private brand -- Member's Mark."
A Sam's Club public relations official further explained the consolidation in an email to The Motley Fool.
"We hope this simplified approach helps our members easily recognize what our private brand is," said the statement provided by Amy Wyatt-Moore. "We want our members to know when they see the Member's Mark label, they can trust we are offering a best-in-class product that can easily compete or beat its national brand counterpart."
In addition to consolidating under one name, Holt has also changed how Sam's Club positions its house brand. In order to do that, she spent "countless hours in focus groups hearing from Sam's Club members on what products they want to see the company offer."
She said that the results were clear, specifically in groceries. Members wanted "premium products made with simple ingredients and they wanted to know they were getting the best bang for the buck." That sounds obvious, but it's actually a switch from the past focus of not just Sam's Club, but most house brands, where value alone was the driving force.
It's about sales
Having a house brand that shoppers equate with national name brands allows a chain to cut out a mouth that needs to be fed in the supply chain. Instead of having to buy the item from its manufacturer, the retailer produces the item itself or uses a third-party producer.
That lets the chain obtain the item at a lower cost, letting it sell it for less money, likely at the same or a greater margin. If the company, Sam's Club in this case, can establish its house brand as a high-quality option, then consumers will opt for it over the name brand when possible.
That creates a positive cycle where shoppers switch to brands like Member's Mark and are happy because they have spent less money. That increases their loyalty to the retailer, which is especially important for a warehouse club like Sam's Club, which succeeds or fails based on membership renewals.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends COST and WFM. The Motley Fool has a disclosure policy.