When it comes to breaking tradition in the world of private label, there is no one better than our friends in Cheshunt. It all kicked off in 1924 when Tesco founder Jack Cohen used the first three letters of tea supplier TE Stockwell’s name and first two of his own to create the retailer’s first private label item – Tesco branded tea.
In stark contrast to Walmart, whose “house of brands” model initially left little room for private label, Tesco made private label a core component of its business strategy from day one. Today, it is arguably the world’s most successful private label retailer with Tesco-branded goods accounting for approximately half of all products that go through the till. It was the first retailer to establish a three-tiered ‘good, better, best’ private label portfolio, a strategy that has since been admired and replicated by leading retailers across North America, Europe and Asia. Its Value range was launched in 1993 as a means of fending off competition from new entrants to the UK market – discounters Aldi and Lidl. Four years later, through the analysis of shopper data, Tesco recognized that there was a gap in the market for premium private label items and launched its Finest range. Today both Tesco Value and Finest are each £1 billion+ brands, making them larger than national brands such as Walkers or Coca-Cola in the UK. The company has found equal success in non-food private labeling. Its Florence & Fred apparel line has been turned into a standalone clothing store in Prague, competing with fast fashion chains such as H&M. Meanwhile, Tesco has extended its brand into financial services, letting its shoppers decide whether their car insurance requirements fall into the Tesco Value, Standard or Finest bracket.
However, not all has gone smoothly. Its answer to the recession - Discount Brands - had more than a faint whiff of desperation. As competitor Asda’s CEO Andy Clarke told me in a recent interview, Asda’s aim is to be Britain’s best value retailer – not the biggest discounter. Tesco was happy to take that role on but as we now know their Discount Brands led to a degree of self cannibalization (shoppers trading down from more profitable Tesco private labels) and certainly alienated some Tesco shoppers who may have been looking for value but not for the sake of quality. Sainsbury’s has done a great job to exploit this gap.
So here we are again with Tesco’s latest attempt to shake up the private label world with the launch of so-called venture brands (please see Planet Retail for full details + photos). Like Discount Brands, these products do not bear the Tesco name but, in stark contrast to the DBs, these are positioned as aspirational brands. The Chokablok ice cream brand for example is retailing at £3.99 for a 500ml container – just under premium brands like Ben & Jerry’s (£4.49) and Haagen-Dazs (£4.15). On a per unit basis, Chokablok is priced higher than a number of national brands and a whopping 2.3 times more expensive than the Tesco Finest brand! Talk about margins.
Last year, in our report Private Label: Brands of the Future, Planet Retail predicted the rise of super premium as the next big trend in the world of private label. It will be interesting to see how shoppers take to these brands, most of which will have no clue that these are actually Tesco brands. The key will be product quality and marketing – if Tesco can tick these two boxes then these brands should gain traction (shoppers are still looking to treat themselves after all), which will enable Tesco to regain some margin and perhaps reinvest in price in more commodity-led areas of the store, all of which means points to one thing - more pressure on the supplier!
For more, please visit Planet Retail.
Tesco's Chokablok brand is priced above Finest
