Private labels give big brands a run for their money

Branded food companies like Kraft (NYSE: KFT) and Sara Lee (NYSE: SLE) are facing competition from a source that has been an after-thought for years: private label products.

According (subscription required) to The Wall Street Journal, "Food retailers are growing more sophisticated about developing and branding their own products. They're even building brands that bear no resemblance to their store names, such as Target's Archer Farms line of gourmet oils, appetizers and frozen foods, and Safeway Inc. (NYSE: SWY) Eating Right line of frozen dinners, cereal and salad dressings."

Of course, grocers make more money selling products they make (or buy cheaply from a third-party manufacturer without the pricing power of a strong brand) and market themselves, rather than ones the buy from a large brand.

With American consumers not feeling quite as rich as they did during the days of the housing bubble and easy credit, private label brands should continue to gain market-share. Wal-Mart (NYSE: WMT) has reported that that is already happening, as a result of the cash-strapped consumer.

That could spell trouble for companies like Kraft and Sara Lee, and it could be great for grocery stores -- higher margins. Investors may want to pick their food-related investments accordingly.