TESCO supermarket in UK, Branding and Own Label

The objective of this paper is to explore the place of branding and own label in the UK grocery retailing market, specially focusing on the industry leader Tesco Corporation. It explores branding and own-label concepts that have been adopted by Tesco together with new challenges that the supermarket faces. It provides benefits of branding for Tesco, its customers and suppliers as well as other stakeholders. The study presents a strategic approach that Tesco has adopted to maintain top market share and survive in the rather highly competitive UK grocery and food retail market. There is in-depth analysis of Tesco’s branding strategies, how the brand has been and could be further leveraged, and the impact of own label on the brand.

Background

The term own brands, alternatively identified as private labels or store brands, refer to all the merchandise sold under a retailer’s brand. The term ‘brand’ can be use in reference of a corporation/company, a logo, a legal instrument, an image in customer’s mind, an identity system, an added value, a personality, a risk reducer, an evolving entity, and specific attributes of a given product such as producer, performance, price or shape (Kumar, 2007, p.65). On the other hand, private labels or own labels refer to consumer products produced by/for the retailer and sold only in its stores (Brassington & Pettitt, 2005, p. 56). In this regard, the success of own label penetration largely category dependent, and thus heavily influenced by the particular performance of the manufacturer’s sector in the specific sector. The primary success fact for a retailer developing their store brands depends on whether it is able to build loyalty and trust through their specific branding strategies (Lincoln, 2008, p.18).

Own brand products have grown more sophisticated and increased significantly their market share in the UK grocery retailing market. Own brand products, often marketed through a store’s own label, have been on the increase at all levels of value for both food and non-food products across the United Kingdom (Wright, 1999, p. 136). The growth has been in response to growing customer demands for greater value for their money.

National culture is key factor when it comes to the success of branding and own labels because consumers in different countries have varied perceptions about brands and own labels at different stages of development. British grocery retailers have gradually developed a retail brand which is now generally perceives by consumers as being equivalent to and at times better than most established manufacturer brands (Thain & Bradley, 2012, p.81).

Tesco Brand and Branding

Tesco PLC is Britain’s leading multinational grocery retailer and general merchandise, with headquarters in Cheshunt, United Kingdom. The corporation was founded in 1919 by Jack Cohen, then as a group of market stalls (Seth & Randall, 2011,p. 43). The “Tesco” was first coined in 1924 when the founder purchased a tea shipment for Thomas Edwards Stockwell, and then combined the initials with the first two letters of his own surname, Cohen (Corstjens & Corstjens, 1995, p.12). Initially a purely UK-oriented grocery retailer, Tesco has diversified its offering into other business areas such as retailing of books, electronics, DVD rentals, software, telecoms, internet services, music downloads, financial services, clothing, and furniture. Tesco also offers Pet Accident & Injury insurance and Car Insurance. At the moment, Tesco is the industry leader in the UK and the third largest retailer in the world. Tesco has held the market leader title in the UK grocery sector for half a century now, and was the first supermarket to introduce the loyalty care in the UK as well as launch an on-line shopping service (Bhatia, 2008, p. 292). However, the grocer’s market share has been torn into by competitors making it to deliver modest profit growth in fiscal year 2012. Its strong international performance has been considerably offset by a drop in UK profits. Tesco lost market share to such low-cost grocers as Ali, Lidl and Iceland. The loss of market share in the local UK market can be attributed to Tesco’s action to overstretch itself in international markets while losing focus on the U.K. where competitors have capitalized and gained market share.

The consumer behavior grocery shoppers have also changed to the disadvantage of the Tesco brand. This is especially the case because, in light of the increasing food prices, British shoppers have cut back on the number of groceries they purchase or switched to cheaper alternatives.  The greatest competitive advantage for Tesco, however, stems from its revived effort to gain understanding of consumers and shopping behavior. Tesco is a model retailer that has grounded its branding and private label strategies through intense shopper insight along with powerful data mining, including analysis of its loyalty cards. Tesco has hired the services of leading U.K.-based research and marketing firms such as Dunnhumby to unlock insights hidden in its customers’ behavior. The information has helped Tesco to refine its assortment, consumer targeting, and pricing efforts with remarkable success. Currently Tesco is able to offer multi-tiered label products that are managed as section of its comprehensive portfolio. Understanding of consumer behavior has enabled Tesco to use product branding to develop rather unique store brands for its shoppers. In fact, Tesco has been successful in aligning its private label portfolio for each of the customer segments and used its own stores as a prototype for creating innovative and unique brands. The retailer develops brand identity able to transcend category marketing and serve to help brand the store itself.

The illustration below represents Tesco’s successful brand architecture.

Figure 1. Tesco Brand Architecture

(Kumar et al, 2007, p. 83)

The typical Tesco brand encompasses a wide range of lines, in excess of 8,000 lines. The incredible success of the Tesco brand and continuous growth over the last three decades is attributable to use of a range of highly innovative schemes to achieve a change in strategy and image (Krafft & Murali, 2010, p. 76). Tesco begun by bringing appeal to all its segments of the market i.e. lower class, middle class, and upper class through and “inclusive offer” strategy. This entails offering high-quality goods at reasonable price. Tesco achieve this fete by offering four different levels of own-brand products: the ‘Finest’ range of premium products, the ‘Tesco Organic’ range, the ‘Tesco Healthy Living’, and the ‘Value’ range for price-conscious consumers (Krafft & Murali, 2010, p. 79). Tesco has gradually succeeded in changing customer’s perception regarding own-brand labels, enabling the company to earn higher profits margins relative to other branded products.

In building Tesco as a top-notch brand, branding is done at three level: (1) branding Tesco goods and services for sale; (2) branding the Tesco store formulae; and (3) branding Tesco’s corporate culture. Tesco manages to effectively exert control over its ranges in-store through advanced branding of its items and services (McLoughlin & Aaker, 2010, p. 126). New retail brand items are continuously developed to fill gaps in ranges so as to offer customers with a wide selection. Tesco also engages in on-shelf promotions and communications of its brand items, which ensures constant brand reinforcement across the stores (Aaker, 1996, p. 98). The company usually uses distinctive packaging of Tesco logo which makes its items conspicuous in merchandising displays (Floor, 2006, p. 123).

Tesco also practices transfer of retail branding, in which Tesco is utilized as the branding for stores. This is usually common in markets where Tesco is in association with the strong local brand, where entry as well as entry development was through acquisition (Glemet & R Mira, 1993, p. 89). By controlling its brand offering in-store, Tesco is able to effectively co-ordinate its store brand with the merchandise brand and achieve a more effective comprehensive marketing effort (Dawson et al, 2006, p. 196). This mechanism has enabled the company to increase the overall share of Tesco branded items in the UK stores, achieving over 40 percent of grocery sales under Tesco brand together with as steadily rising amount of Tesco managed brands in the non-foods category.

Tesco Own/Private Label

Private label quality perception has significantly improved in the rest past, with an estimated 79%, eight in ten, British shoppers experience confidence in the quality of private label products. Tesco has vigorously invested in developing own labels thus offering its customers unique products that differentiate the store from its main competitors such as Asda, Morrisons, Sainsbury’s, and Waitrose (Doyle, 1998, p.127). Tesco has continued to regard private label as a core element of its business strategy to the extent that it currently is the world’s leading own-label retailer as Tesco-branded goods account for about half of products purchased.

Tesco was the first UK retailer to introduce a three-tiered private label portfolio – “good, better, best.” Tesco’s product specifications are targeted to offer market leading quality at fairly lower prices than the competitors. The brand’s positioning is between Tesco’s Value and Finest offers in a multi-tier approach, which is slightly above the established discounter range (Dawson et al, 2006, p.206). Consumer’s purchase of Tesco’s own label is influenced by the overall national familiarity with the store’s own labels. At present, Tesco Value and Finest are individually worth more than £1 billion+ brands, effectively making them larger than most national brands e.g. Coca-Cola or Walkers in the UK (McLoughlin & Aaker, 2010, p.135). Tesco has also experienced great success in non-food private labeling, where its Florence & Fred apparel line has grown into a standalone clothing store in Prague.

Threat from own Labels

The Tesco brand has faced threats from own labels. In 2011, Tesco introduced venture brands aimed at providing the brand with a private label that was characteristically alternative to other premium own label products particularly in categories where customers are appealed to brands. Such products include Yoo yohgurts, Nutricat and Lathams pet foods, and ChokaBlok ice cream. These products lacked Tesco branding, design and merchandising, high quality ingredients, as well as Tesco’s own websites. Sales growth for the Tesco Venture Brands was the lowest in almost two decades in the United Kingdom.  This is attributable to the trend of shoppers to switch to budget rivals. Reduced disposable income of shoppers was as a result of subdued wages and salaries growth, government’s austerity drive, and rising prices of food and fuel. Given that the Tesco Brand makes almost two thirds of its entire sales and profits in the U.K., it suffered more than competitors because Tesco offers a higher proportion of discretionary goods on which shoppers are saving on the most (Wood, 2008, p.155).

Conclusion

Generally, Tesco’s branding and own-label has grown more strategic compared to 20 years ago when customers perceived retail brands as low price offering of manufacturer items. Going forth, competitors can be assured of a more competitive Tesco through revolutionized branding and more own-labels. Tesco has also focused on maximizing customer value as opposed to shareholder value. As such, the company aims to achieve higher profits by focusing on customer service. Tesco consistently strives to better its standard of services and meeting customer’s needs. The brand’s offerings seek to capture trends of new lifestyle, stressing both health and environment in regards to customer, business partners, and employees.

Tesco has also adopted a diversification strategy stressing on four major areas: innovation and expansion in its primary UK grocery market together with other areas such as convenience stores and online; innovation through expanding into non-food business e.g. non-Food Finest & Value ranges; expansion into specific retail services such as personal finance telecoms along with utilities by venturing into joint ventures and acquisitions of major specialized players in such industry sectors; and expansion into international markets especially Asia and Africa.

Recommendations

Tesco as a brand needs to consider how to do business going forth considering that positive customer perception and staying competitive in the UK retailing market is no longer over price and value propositions. Recently, there has been shift in competition from price and value towards environment. The new consumer trend is increasingly gravitating to more concern of the environment. As such, Tesco must revise its branding strategies together with new own-labels towards creating a perception of a brand with green attributes as well as caring image.  Tesco will have to do more towards environmental protection and conservation through its corporate social responsibility.

With all indications suggesting that the rise of super premium is bound to be the next big thing in the private label sector, Tesco should focus on product quality and marketing to gain traction among shoppers for its Discount Brands and Venture Brands. This will help Tesco to regain some profit margins and reinvest in price in commodity-led areas.

 

 

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