Branded food manufacturers vindicate the use of excess production capacities to justify their production of retailers’ brands. We study the distributor's and food manufacturer's private label (PL) strategy for production within a framework featuring endogenous store brand quality, bargaining power, possible differences in production technology and potential capacity constraints for the branded manufacturer. Depending on the structure of capacity constraint (applying to both products or to the PL only), we find that the retailer may prefer to choose an independent firm for the production of the store brand whereas the branded manufacturer is chosen in the case of excess capacity.