Magazine article Marketing

Tesco's Unbranded Gamble

Magazine article Marketing

Tesco's Unbranded Gamble

Article excerpt

The UK's biggest retailer has an ambition to be a global brand-owner. Should other brands be worried, asks Rachel Barnes.

When Tesco unveils a fresh strategy, few companies will fail to sit up and take notice.

So, when the UK's biggest retailer - and the world's third-biggest - states its intention to become a global brand-owner, its choice of the rather mundane categories of cat food, dog food and ice-cream for its first 'non-branded' products does nothing to diminish the significance of the announcement. Tesco would not have set out its ultimate ambition for these items - to be sufficiently successful that other retailers will sell them - unless it had total self-belief.

'These are real brands in their own right and we believe they will be strong enough to sell outside of Tesco in non-competing retailers,' claims Tesco brands development director Sidonie Kingsmill, who is leading the 'venture brands' team (see box, right).

Kingsmill says that all categories will be considered for launches, across grocery, clothing and general merchandise. The aim, as outlined by chief executive Philip Clarke, is for Tesco to become a 'creator of brands', building on the success it has achieved in the past decade with the standalone F&F clothing label, electronics brand Technika and Skin Wisdom toiletries.

Cause for concern

While Tesco insists brand-owners 'are not upset' by its strategy, the creation of a tier of products that will gain automatic listings in thousands of stores in the UK and overseas is likely to put FMCG brands on high alert.

'I think brands will be worried, particularly as Tesco is planning to target very specific niches,' says Fiona McAnena, brand director of Bupa and former vice-president of innovation at PepsiCo. 'This strategy could prove a very serious threat to brands if Tesco puts a high level of support behind them. You should never underestimate what Tesco can do If it is looking at launching brands seriously, then other brands need to take it seriously.'

A fear of future store-planning constraints restricting Tesco's expansion could also play a part in the strategy: creating brands that can grow sales beyond Tesco's walls could prove a new revenue stream. 'It is an extraordinary ambition that the footprint of the stores is no longer enough for them,' she adds.

Shelf-space constraints will also be the key issue on brand-owners' minds; something will have to give as these brands come in.

'Tesco will clearly have to squeeze shelf space,' says Angus Maciver, chief executive of retail sales specialist McCurrach and former group marketing director of Morrisons.

'It will be a concern for the categories involved if fast-selling lines have their space squeezed to be replaced by a line that will inevitably be a slower mover.'

However, Maciver concedes that if category sales take a hit, Tesco will react with lightning speed to correct the balance. He believes one potential danger facing Tesco is that the brands may appear a bit 'small and unknown', not typically a recipe for success on impulse-driven supermarket shelves.

'It is very easy to underestimate how difficult it is to build a brand, from product and packaging to advertising,' warns Maciver. 'There have been cases where brands have succeeded without heavy advertising at the start, such as Muller, which stood out because of its different packaging. If Tesco can try to replicate that and give sufficient space in-store, that could be enough.'

Kaye Coleman, founder of pricing specialist Ripe Strategic, is fascinated by the possibilities for Tesco's promotional strategy. The positioning of brands will be crucial to drive trial, she notes, with the coveted gondola-end shelves potentially being reserved for launches. 'Where it price-positions brands within the category will also be interesting, specifically its price-promotion strategies,' she adds. …

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