McBride PLC is not a household name, and that suits the company just fine, even though European consumers spend almost $1 billion a year on the household cleaners, laundry supplies, and hair- and skin-care products it makes. McBride, based near Manchester, England, is in the private-label business, making goods that European retail chains sell under their own in-house brands. The work isn't glamorous, but it's lucrative: McBride posted a 27.9% increase in profits, to $65 million last year, and sales in Germany, France, and Italy are growing more than 9% annually. "In Western Europe, I'd rather be in private label than in consumer branded goods," Chief Executive Mike Handley says. Global brands' share of Europe's bottled water market plummeted from 53% in 1997 to 40% last year, as retailers turned instead to private-label producers. "It's a trend we perhaps didn't grasp as quickly as we should have," says Carlo Donati, a veteran Nestlé executive who recently took charge of the Nestlé Waters division. 

In recent roadshows in London and New York, Nestlé top brass told investors they would fight back by negotiating deals with discount retailers to put more Nestlé products on their shelves.Europe's private-label business is taking off like a rocket, fueled by the rapid growth of discounters such as Germany's Aldi Group and France's Leader Price. Their no-frills stores, which stock almost entirely private labels that typically cost 20% to 40% less than name brands, have lured customers away from longer-established retail chains such as Paris-based Carrefour and Royal Ahold (AHO ) of the Netherlands. The big chains are fighting back by greatly expanding their private-label offerings. Carrefour introduced a line of low-priced private-label goods in 2003 that now generates $1.6 billion in annual sales. Ahold and eight other European retailers have formed an alliance that negotiates with private-label manufacturers on purchasing hundreds of products, from paper goods to soft drinks, that are sold under the brand name Euroshopper.

Europe's private-label boom is the last thing global consumer brands needed. In the U.S. they're increasingly at the mercy of Wal-Mart Stores Inc.'s (WMT ) power to demand steep discounts on volume purchases. They also face more vigorous competition from private-label brands in emerging markets, from Poland to the Philippines. Hold onto your shopping carts, folks -- this battle's just getting started.

The big chains are fighting back by greatly expanding their private-label offerings. Carrefour introduced a line of low-priced private-label goods in 2003 that now generates $1.6 billion in annual sales. Ahold and eight other European retailers have formed an alliance that negotiates with private-label manufacturers on purchasing hundreds of products, from paper goods to soft drinks, that are sold under the brand name Euroshopper.