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Tesco Private Label Strategy and Performance
Focus: Dairy Categories(milk, yoghurt, hard cheese, instant coffee, Carb Min Water)
Retailers: Safeway, Asda, Sainsbury
Key Figures Total sales
(EUR mn) Market Share
Country % Food (EUR
mn) Market Share
Country %
Tesco in UK 38,864
20.03
29,739
22.43
Tesco in Korea, South 2,282 4.25 1,027 2.70
Tesco in Ireland 1,868 18.10 1,605 19.49
Tesco in Thailand 1,408 12.66 987 10.95
Tesco in Hungary 1,401 18.34 988 17.97
Tesco in Poland 1,095 3.78 787 3.30 Tesco in Czech Republic 643 6.22 389 4.95
Tesco in Slovakia 506 11.82 325 9.28
Tesco in Japan 172 0.03 172 0.03
Tesco in Taiwan 145 0.53 102 0.48
Tesco in Malaysia 111 1.58 78 1.44
Tesco in Turkey 30 0.12 18 0.09
Latest Results Half year ending 09.08.2003
• Group turnover +16.7% to € 20,6 billion
• Group operating profit +21.1% to € 1,08 billion
• UK turnover +13.9% to € 16,5 billion
• UK operating profit +16.2% to € 940 million
• UK LFL +6.3%
*All figures exclude VAT and sales taxes
Source: Company
European Store Numbers
UK: 815 (+1,158 T&S)
Eire: 79
France: 1
Poland: 67
Hungary: 55
Czech Republic: 19
Slovakia: 17
Market Entry
Czech Rep: 1996
France: 1993
Hungary: 1994
Eire: 1997
Slovakia: 1996
Poland: 1995
UK T&S: 2003
Source: Company
Asian Store Numbers
Malaysia: 4
Thailand: 55
South Korea: 26
Taiwan: 3
Market Entry
Japan: 78 Thailand: 1998
South Korea: 1999
Taiwan: 2000
Malaysia 2002
Japan 2003
Source: Company
Group Turnover £ million
0
5.000
10.000
15.000
20.000
25.000
30.000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
£ m
illio
n
0
5
10
15
20
25
% G
rowth
Turnover £ million % growth
Source: IGD
Key Store Formats
Tesco Extra• Hypermarkets
• Up to 50,000 SKUs
• Mix of food, non-food & services
• Av size 8.000 sq mtr (over 25% non-food)
Source: IGD
Key Store Formats
Tesco Metro• Small urban stores
• Top-up shopping & lunchtime trips
• Av size 900 sq mtr
• Site selection critical for success
Tesco Express• Forecourt / convenience stores
• Some Tesco-branded, some with Esso
• Av size 200 sq mtr
• Major area of expansion
• Note acquisition of T&S Stores, 2003
Source: IGD
Traderorientation
Classic supermarket
Chain orientation
Brand selling Stores35% of the market
Discount25% of the market
Quality Discount10% of the market
Branded Stores30% of the market
?
No value addOnly selling
Added ValueConcept oriented
HighPrice
LowPrice
Different segments need different approach!Different segments need different approach!
Strategy with focus
• Maintain strong UK core business:– Competitive pricing, mix of EDLP & promotions– Extensive store portfolio, range of formats– Cost savings rolled back into improved offer
• Develop strength in non-food:– Additional space in stores– Overseas buying hubs, sourcing products at low cost
• Retailing services:– “Following the customer” into new areas of expenditure– Some services developed through joint ventures
• International growth:– 45% of space outside UK by end of 2002-03– Active in 12 overseas markets in Europe, USA & Far East– China under consideration
Source: Company
Strategy
Tim Mason, marketing CEO
We need to continue two dimensions.First cost leadership in our own segment. We will cut cost in the total supply chain.Second is Differentiation. We will focus on new formats and new PL in growing categories
Tesco PL Strategy• Private labels generally
– growing part of Tesco's business. – broaden depth of products on offer– create point of differentiation– fill strategic price gaps and increase margins– following economy/standard/premium, focus now on segmentation and
expansion - development of wider variety of sub-brands by price category• Internationally
– first right product at the right price from local suppliers– then develop own label to fill strategic price gaps and build recognition in store– range adapted to meet local tastes - Value vodka in Hungary and Value
dumplings in Poland– value line available across all of Tesco international businesses– in Europe all operations sell the Tesco standard range as well– Tesco Finest range selectively introduced across its Eastern European
operations– outside UK, increase private label sales by 40%.
Assess the Threat of Private LabelsBenchmarking Tesco UK vs Tesco abroad
Benchmark Total F&B TescoPL Share PL Growth
UK 39.9 -3.5HU 25.6 -0.6CZ 7.2 3.2Ireland 20.2 2.0
-20
-10
0
10
20
30
40
50
60
70
80
90
UK Hungary Czech Ireland
Hard Cheese
-20
0
20
40
60
80
100
UK Hungary Czech Ireland
Milk-10
-5
0
5
10
15
20
UK Hungary Czech Ireland
Yoghurt
PL Share
PL Growth
Tesco’s multi level PL strategy+
Volume +
Pric
e an
d Q
ualit
y
O
Cheap White Label
Commodity level QualityStore Name Brand generics etc
Special Private LabelOrganic etc
Premium QualityPremium Quality Tesco Finest
Tesco Value
Tesco Standard
34%34%
61%61%
5%5%
growing
Internationalization of Tesco‘s Value Range
Tesco Bread Range
800Grams –23p 800Grams – 45p
800Grams – 44p 800Grams – 82p
Tesco Stores
Merchandising Best Practice
Letlany, Prague Bar Hill, Cambridge
Merchandising Best Practice
Bar Hill, Cambridge Kensington, London
Tesco uses hard selling techniques
Where is Tesco’s PL strategy effective in the UK?
ColasLemonades
Other Flavoured Carbonates
Tonic Water
Bitter DryConcentrated Fruit Squash
Pure Fruit Juice
Carbonated Mineral Water
Still Mineral Water
Instant Coffee
Bean & Ground Coffee
Tea
Instant Drinking Chocolate
Beer
Table Wine
Whisky
GinVodka/WodkaRum
Butter
Margarine & Spreads
Total Milk
Hard Cheese
Soft Cheese
Processed CheeseYoghurts
Frozen Fish Frozen Meat Products
Frozen Pizza
Frozen Ready Cooked Meals
Frozen Vegetables
Total Ice Cream
Tinned Tomatos
Canned Sweetcorn
Canned Green Beans
Canned Peas
Canned Fish
Cooking Fats & Oils
Packet Soup
Pasta
Breakfast Cereals
Jam
Peanut Butter
Chocolate Spread
Potato Crisps
Plain & Savoury Biscuits
Sweet Biscuits
Cooking Sauces
Ketchups
Mayonnaise
Salad Dressings
Wet Cat Food
Dry Cat FoodWet Dog Food
Dry Dog Food
Bleach
Dishwasher Products
Batteries
Electric Light Bulbs
Fabric Conditioners
Heavy Duty Washing PowderKitchen Paper
Lavatory Cleaners
Light Duty Washing Powders
Washing Up Liquids
Window Cleaners
Body Creams/Skin Care
Dentifrice/Toothpaste
Deodorants
Facial Tissues
Hair Conditioning Products
Hairsprays
Liquid Soap
Nappies/Diapers
Oral Care (Mouthwashes & Floss)
Razor Blades
Sanitary Protection – Tampons
Sanitary Protection – Pads
Sanitary Protection – Pantyliners
Shampoo
Shaving Foams & Soaps
Shower & Bath AdditivesSkin Cleansing Lotions
Toilet Soap
Vitamins, Minerals and Supplements
0,6
0,8
1
1,2
1,4
1,6
1,8
14,00 16,00 18,00 20,00 22,00 24,00 26,00 28,00 30,00 32,00
The PL share index shows whether Tesco‘s PLshare in a category is higher/lower relative to the country PL share in a category
Tesco Market Share
PL focus ineffective PL focus effective
NB focus effectiveNB focus ineffective
Tesco‘s PL focus is not equally effective.Why?
PL strategy effectiveness
Asda
Safeway
Sainsbury
Tesco
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
1,15
1,20
1,25
0,9 1,0 1,1 1,2 1,3 1,4 1,5 1,6 1,7 1,8
Market Share Index
Soft Cheese Yoghurt
Asda
Safeway
Sainsbury
Tesco
0,6
0,7
0,8
0,9
1,0
1,1
1,2
1,3
1,4
0,8 0,9 1,0 1,1 1,2 1,3
Market Share Index
Break Down the DriversTesco Shoppers vs Competition: PL attractiveness
TESCO
SAINSBURY
ASDA
SAFEWAY
MORRISONS
SOMERFIELD
CO-OP
Above averageBelow average
Perceive low value difference and PQ Inference
PL category status in the UK
Colas
Lemonades
Other Flavoured Carbonates
Tonic WaterBitter Dry
Concentrated Fruit Squash
Pure Fruit JuiceCarb Min
Water
Still Mineral Water
Instant Coffee
Bean & Ground Coffee
Tea
Instant Drinking ChocolateBeer
Table Wine
Whisky
Gin
Vodka/Wodka
Rum
Butter
Margarine & Spreads
Milk
Hard Cheese
Soft Cheese
Processed Cheese
Yoghurts
Frozen Fish
Frozen Meat ProductsFrozen Pizza
Frozen Ready Cooked Meals
Frozen Vegetables
Total Ice Cream
Tinned Fruit
Tinned Tomatos
Canned Sweetcorn
Canned Green Beans
Canned Peas
Canned Fish
Tinned Soup
Cooking Fats & Oils
Noodles
Packet Soup
PastaJam
Peanut Butter
Chocolate Spread
Potato Crisps
Sweet Biscuits
Cooking SaucesKetchups
Mayonnaise
Salad Dressings
Wet Cat FoodDry Cat Food Dry Dog Food
Bleach
Dishwasher Products
Batteries
Electric Light Bulbs
Heavy Duty Washing Powder
Kitchen Paper
Lavatory CleanersLight Duty Washing Powders
Toilet Tissues
Washing Up Liquids
Window Cleaners
Dentifrice/ToothpasteDeodorants
Facial Tissues
Hair Colouring Products
Hair Conditioning Products
Hairsprays
Hand CreamsLiquid Soap
Nappies/Diapers
Razor Blades
Sanitary Protection – Tampons
Sanitary Protection – Pantyliners
Shampoo
Shaving Foams & Soaps
Toilet Soap
Toothbrushes
Vitamins, Minerals and Supplements
0
10
20
30
40
50
60
70
80
90
0 0,2 0,4 0,6 0,8 1
PL Attractiveness Index
corr = 0,75
Brand Opportunity Brand Hell
Brand ThreatBrand Heaven
Top Category Drivers of PL in the UK
LOW Advertising Intensity
LOW New Product Introductions
SMALL Trust Gap between National Brands and Private Labels
SMALL Value Gap between National Brands and Private Labels
SMALL Quality Gap between National Brands and Private Labels
LOW Difficulty of making category
* Based on consumer perceptions
Why milk is in brand hell
Works against
PL
Works for PL
Because brands perform lousily on all key drivers of PL success.
Category rank out of all
categories
0
10
20
30
40
50
60
70
80
90
Advertising Innov TrustGap ValGap QualGap ProdbyNB
Carb Min WaterInstant CoffeeMilk
Why hard cheese is in brand hell
Works against
PL
Works for PL
Category rank out of all
categories Because brands perform lousily on most key drivers of PL success.
0
10
20
30
40
50
60
70
80
90
Advertising Innov TrustGap ValGap QualGap ProdbyNB
Carb Min WaterInstant CoffeeMilkHard Cheese
Innovation in Brand Hell
Why yoghurt is (just) in brand heaven
0
10
20
30
40
50
60
70
80
90
Advertising Innov TrustGap ValGap QualGap ProdbyNB
Carb Min WaterInstant CoffeeMilkHard CheeseYoghurt
Works against
PL
Works for PL
Yoghurt scores better because of perceived innovation and value gap.
Category rank out of all
categories
Tesco’s finest UK: premium PL
In summary
Tesco is hugely successful, and driving category innovation.
Tesco as brand.
Tesco PL range is successful and will be extended internationally.
Tesco UK shoppers are not more attracted to PL than average.
Tesco’s success with PL differs significantly between categories.
Opportunity for category- and brand-specific dialoguebased on country-specific category drivers of PL success (advertising, quality gap, trust gap, value gap, innovation, PL production by NB manufacturers)If you as a brand manufacturer offer Tesco a source of differentiation.