Private-label products sold by food, drug, and mass merchandise retailers have enjoyed a 2 percent increase in sales recently, even as branded products have suffered a 1 percent decline. Thus retailers across the board are looking for other categories in which private labels offer promise, and alcohol seemed like a perfect fit.

However, private-label beers have not fared as well as expected. Private-label alcoholic beverages actually make up less than 1 percent of retail alcohol sales.

The reason cannot be the price: Supervalu sells 12-pack cans of Buck Range Light for $5.99, less than an equivalent amount of Busch Light or Keystone Light. Walgreens’ private-label beer is Big Flats 1901, and it sells for $2.99, right next to the Bud Light for $6.99. These significant price differences for six packs reflect continuing increases in the big beer companies’ price levels. The scenario thus seems ideal for allowing low-cost, private-label competitors to enter the market.

Yet MillersCoors retains a 29 percent share of the U.S. beer market, and Anheuser-Busch takes up 48 percent. MillersCoors argues that retailers should avoid stocking private-label beers, because doing so would commoditize the beer category and harm everyone in the supply chain. Of course, it also just might not want to competition of additional beer brands.

Perhaps the best explanation for the failure of private-label beer though is the consumption setting. Most people drink in social settings, which means the brand is important as a symbol and signal to friends. The best option may be the “craft beers” category. There is no dominant national brand, and customers often enjoy niche brands that offer special or unique flavors. Costco thus has done comparatively well with its Kirkland Signature beer, which it markets as a craft beer.

Discussion Question:  List some possible reasons for the generally disappointing performance of private-label beer.

Source: David Kesmodel, “Private-Label Beers Take a Shot at Earning Joe Sixpack’s Respect,” The Wall Street Journal, February 8, 2011.