---
title: "When Retailers Launch Private Labels, What Should Brands Do? Lessons from Costco and Pepsi in North America"
description: "Whether it's hard discount, membership-based retail, or instant retail, along with private labels that haven't fully exploded, the impact of channel changes on brands is undeniable, and 2025 will only be more intense than 2024. In this context, what should brands do? Looking globally, China's retail industry is not leading. Many problems can be solved by looking at retail history. This article briefly shares the 'love-hate entanglement' between Costco and PepsiCo in the North American market, more precisely, a 20-year tug-of-war between brand and channel."
author: "张振宇"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2025-03-06"
language: "en"
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# When Retailers Launch Private Labels, What Should Brands Do? Lessons from Costco and Pepsi in North America

> Whether it's hard discount, membership-based retail, or instant retail, along with private labels that haven't fully exploded, the impact of channel changes on brands is undeniable, and 2025 will only be more intense than 2024. In this context, what should brands do? Looking globally, China's retail industry is not leading. Many problems can be solved by looking at retail history. This article briefly shares the 'love-hate entanglement' between Costco and PepsiCo in the North American market, more precisely, a 20-year tug-of-war between brand and channel.

Whether it's hard discount, membership-based retail, or instant retail, along with private labels that haven't fully exploded, the impact of channel changes on brands is undeniable, and 2025 will only be more intense than 2024.
In this context, what should brands do?
Looking globally, China's retail industry is not leading. **Many problems can be solved by looking at retail history.**
This article briefly shares the 'love-hate entanglement' between Costco and PepsiCo in the North American market.
More precisely, **it is a 20-year tug-of-war between brand and channel.**
Compared to boring theory, we hope to provide brands with more intuitive thinking and inspiration through real cases.
**Learning from History: The Story of Costco and Pepsi in North America**
Let's start with the ending.
For brands, although the situation is not perfect, in the North American market, Pepsi failed to completely stop the impact of Costco's private label Kirkland expansion. However, through flexible strategy adjustments, **although Pepsi's share of revenue from the Costco channel fell from 22% in 2005 to 15% in 2023, overall revenue still grew 2.33 times.**
Note: The data conclusions about Costco and Pepsi below are estimated by DeepSeek and are for reference only.
Costco, founded in 1983, created its private label Kirkland in 1995, 12 years after its development.
Kirkland's brand meaning: balancing quality and value.
In the early 21st century, Kirkland expanded rapidly with its 'high quality, low price' strategy, extending from paper towels and nuts to beverages and snacks. At that time, Pepsi held an important position on Costco's shelves (such as Lay's potato chips, Aquafina bottled water), but Kirkland's similar products were generally 20%-30% cheaper, **directly threatening Pepsi's profit margins.**
Costco developed a series of Kirkland products targeting Pepsi's products.
In 2006, to counter competition, Pepsi took the lead in launching 'super combo packs' at Costco, such as bundling Lay's potato chips, Quaker granola bars, and Gatorade drinks, **with a unit price lower than buying Kirkland products separately.**
At the same time, Aquafina bottled water was increased from 24 bottles per case to 32 bottles per case, **using 'bulk value' to counter Kirkland's impact.**
In 2008, Pepsi briefly restricted supply of some popular items (such as Cheetos cheese sticks) to Costco, citing 'insufficient capacity', forcing Costco to make concessions on shelf allocation. This tough strategy led to tensions between the two sides.
**In the early years, even a strong brand like Pepsi did not have a good response strategy to the impact of channels, and even fell into a passive position.**
In the 2010s, as North American consumers' demand for healthy food surged, Kirkland began launching organic nuts, cold-pressed juices, and other products.
**Pepsi realized that a pure price war was hard to win; it had to reshape brand value.**
From then on, it refocused on the brand, returned to products, and launched a series of product innovations. Only then did it find some ways to respond to channel changes:
* In 2014, Pepsi's Quaker Oats launched Quaker Real Medleys (premium oatmeal cups with chia seeds and goji berries), directly attacking Kirkland's organic breakfast products.
* In 2015, Lay's launched 'Stacy's Pita Chips' (positioned as non-fried healthy snacks), and sold 'mixed flavor family packs' exclusively through Costco, avoiding price competition with Kirkland's traditional potato chips.
* In 2016, customized 'low-salt Lay's potato chips' (30% less salt) for Costco, sold only at Costco, avoiding price comparison with regular channel products.
* In 2017, Pepsi acquired the probiotic beverage brand KeVita and quickly distributed it through Costco's channels, seizing the fermented health drink segment.
* In 2017, launched a 'Gatorade energy gel + protein bar' combo pack, targeting Costco's fitness enthusiasts, attacking the sports nutrition segment that Kirkland had not yet covered.
* In 2018 Black Friday, Pepsi and Costco jointly launched 'Member Exclusive Day', where buying Pepsi products earned extra Costco cash vouchers, with single-day sales surging 45% year-on-year.
But at the same time, Costco was also increasing Kirkland's penetration rate, which had already exceeded 30%.
**Obviously, strong channels, especially those with high dependence, have a profound and adverse impact on brands.**
Pepsi began more diversified attempts to reduce dependence on a single channel. **Not only on the channel side, but also on the supply chain side, to more precisely adjust omnichannel balance.**
Pepsi's independent site PantryShop
Subscription-based purchase of customized snack boxes __
> In 2019, Pepsi launched the 'PantryShop.com' subscription service (later integrated into the SodaStream brand), where consumers could directly order customized snack boxes, weakening retailers' intermediary control. In 2020, during the pandemic, it accelerated layout in convenience stores and e-commerce, launching 'mini cans of Mountain Dew' (promoted by convenience stores) and 'Amazon Prime exclusive gift packs' (including multi-brand combinations) to disperse sales pressure from warehouse clubs. In 2021, it invested $500 million to renovate North American factories to achieve 'regional flexible production' (such as a Pennsylvania factory near Costco warehouses exclusively supplying customized products), increasing order response speed by 40%. In 2024, responding to consumers' budget-sensitive trends, it launched 1-2 dollar small-pack potato chips to seize convenience store shelves, competing with low-priced foods like instant noodles.
To this day, in the North American market, facing the ongoing challenges of channel changes, Pepsi is still trying more measures, such as the 2025 business unit organizational restructuring and consolidation, to maintain its continued competitiveness.
This may be the most realistic way for brands and channels to coexist: **Dancing with giants requires both close engagement and stepping outside their rules.**
**Brands Dancing with Channels**
If there are lessons to learn from Pepsi's experience, the author believes the most critical are the following three points: **knowing the rules, differentiated competition, and omnichannel balance.**
Since new channels can emerge, it means the retail environment is undergoing systemic changes.
China's current discount retail, membership supermarkets, and instant retail, as well as the subsequent adjustments in traditional retail such as KA and CVS, clearly indicate that the rules of the retail game are undergoing dramatic changes!
When the rules of the retail game change, the entire industry chain (distribution, brands) must also change.
The full-chain change in the rules of the FMCG market
No matter which market's retail history you study, you will reach the same conclusion: **the endgame for retailers is to be strong and efficient.**
**The so-called efficiency is not necessarily the highest quality-price ratio, but it must be the best solution for the precise consumer group it serves.**
For brands, China's FMCG market has historically relied on inefficient 'second landlord' retail and distribution network models (possibly even intensive cultivation), and retail is now trying to overturn this. This will impact many brands.
**Knowing the new rules is undoubtedly the most urgent matter in the short term.**
But as mentioned above, during Pepsi's painful years, knowing the rules only temporarily alleviated the adverse situation.
What really needs to be addressed is the mid-term repositioning of the brand to achieve differentiated competition.
**When a category develops to its final stage, it is often not brand vs. brand, but brand vs. retail.**
Efficient retail formats have more direct consumer data and understand products; this is an objective fact.
**Based on this, retail will inevitably touch private labels.**
And the question all brands should think through: What to do when Sam's Club or Aldi starts replacing your existing products with their private labels?
There are generally two approaches: either be incomparable in industrial chain advantages and become their OEM; or step outside the existing product framework and continuously create products that retailers cannot replicate through data.
**The former weakens the brand, the latter elevates brand value.**
**To achieve the latter, you must clearly define how brand value is concretely reflected in products, so consumers can identify it, which is differentiation.**
Of course, achieving this step does not mean the brand is done.
On the contrary, as the brand grows and channel penetration increases, it will face the long-term ultimate problem: **Various retail models are efficiently serving their segmented retail customers and scenarios, requiring different products. How to balance across all channels?**
This is extremely challenging for brands. It requires not only familiarity with the rules of each channel model, but also corresponding product responses, and the organization and supply chain to support such a product matrix system.
Of course, if a brand can do this, it must be excellent.
Just like Pepsi's cooperation with Costco, subtly maintaining a balance with its private label while sustaining growth.
But the difficulty is evident.
**In China's current FMCG market, how to dance with retailers is undoubtedly a compulsory course for brands to learn next.**
On the afternoon of March 17, at the China FMCG Innovation Conference, we organized **'SVIP Private Sharing: New Growth under Systematic Retail Change'**, where we invited FMCG brands, retail enterprises, and industry experts to discuss new cooperation models and business docking under retail change. Welcome to sign up!


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