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Kroger, the country's largest supermarket chains, is suing European grocery giant Lidl, alleging that its "Preferred Selection" in-house brand is too similar to Kroger's "Private Selection" label.
The lawsuit, filed June 30, comes as U.S. supermarkets brace for increased competition from German discount chains Aldi and Lidl, and shows just how important private-label brands, which were once considered lower-quality generic products, have become to the bottom lines of supermarkets.
In the filing, Kroger says Lidl is trying to benefit by "causing confusion" between the two brands. It also alleges that Lidl's new in-house label, which was registered in September, "dilutes" Kroger's store brand.
"Lidl has competed unfairly and continues to compete unfairly with Kroger," the lawsuit states. "As a direct result of Lidl's wrongful conduct, Kroger has suffered and will continue to suffer irreparable injury, including, but not limited to, injury to its trademarks and to the goodwill and business reputation associated with those trademarks."
The lawsuit was filed just two weeks after Lidl debuted its first stores in the United States. The company, which has 10 stores in Virginia, North Carolina and South Carolina, plans to open 100 locations along the East Coast by next summer.
Private-label brands have grown into a booming business in the aftermath of the recession, as shoppers hunt for bargains and grocers look to beef up profit margins by playing up their in-house labels.
"The recession was the best thing to happen to private-label brands," said Diana Sheehan, an analyst for market research firm Kantar Retail. "Shoppers, whether they wanted to or not, started buying private-label to make ends meet. And they quickly realized that private-label brands had come a long way since the 1980s."
In-house brands like Costco's Kirkland Signature and Whole Foods Markets' 365 Everyday Value have become a valuable way for companies to cash in on consumer demand for lower-priced goods. Chains like Trader Joe's, where stores are almost exclusively stocked with private labels, have also added to the appeal by offering exclusive goods. (Case in point: Trader Joe's wildly popular speculoos cookie butter.)
"You can't buy Two Buck Chuck anywhere else," said supermarket analyst David J. Livingston, referring to the nickname for Trader Joe's line of Charles Shaw wines, which at one time sold for $1.99. "These chains take private-label brands very seriously, and every year, it becomes a bigger part of their business."
Last year, overall in-house brands accounted for $120.5 billion in U.S. sales, up 6 percent from 2013, according to Kantar Retail. Consumers were most likely to buy private-label milk, over-the-counter drugs and baking supplies, while they tended to stick to national brands of pet food and hair care products.
At Kroger, store brands including Private Selection, which was introduced about 20 years ago, account for more than $20 billion in annual sales, and include a range of items, from herbs and produce to smoked salmon and arranged flowers.
According to the filing, Kroger is seeking compensation "including but not limited to" all profits from Lidl's Preferred Selection brand. Krogers, which has about 2,800 stores around the country, last year had $115.3 billion in sales.
A spokesman for Lidl said he could not comment on ongoing litigation, but emphasized that the new brand was created in house.
"We are very proud of our Preferred Selection range, which is a unique specialty brand developed by Lidl, and one that has been positively accepted by our customers," Will Harwood, a spokesman for Lidl, said in an email.
Lidl's 10,000 stores around the world are stocked mostly with in-house products, which the company says are priced up to 50 percent lower than at rival stores.
Overall, private label sales make up 25 to 30 percent of all supermarket sales, a figure that is expected to rise in coming years, according to Shaheen.
"With millennials, you have a whole generation of shoppers who have grown up without the stigma of private-label brands," she said. "You're going to see this become the core focus of every single retailer in the U.S."