Tesco Private Label Strategy and Performance Focus: Dairy Categories (milk, yoghurt, hard cheese, instant coffee, Carb Min Water) Retailers: Safeway, Asda, Sainsbury
Key Figures Tesco in UK Total sales (EUR mn) Market Share Country % Food (EUR mn) Market Share Country % 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 Slovakia: 17 Hungary: 55 Market Entry France: 1993 Hungary: 1994 Poland: 1995 Czech Rep: 1996 Slovakia: 1996 Eire: 1997 UK T&S: 2003 Czech Republic: 19 Source: Company
Asian Store Numbers South Korea: 26 Market Entry Japan: 78 Thailand: 1998 South Korea: 1999 Taiwan: 3 Taiwan: 2000 Malaysia 2002 Japan 2003 Thailand: 55 Malaysia: 4 Source: Company
Group Turnover million 30.000 Turnover million % growth 25 25.000 20 20.000 15 million 15.000 10 % Growth 10.000 5.000 5 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 0 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 Source: IGD Major area of expansion Note acquisition of T&S Stores, 2003
Different segments need different approach! Brand selling Stores 35% of the market High Price Branded Stores 30% of the market Classic supermarket No value add Only selling Chain orientation Added Value Concept oriented? Discount 25% of the market Trader orientation Low Price Quality Discount 10% of the market
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 Labels Benchmarking Tesco UK vs Tesco abroad 20 Yoghurt PL Share PL Growth 15 10 5 0 Benchmark Total F&B Tesco PL Share PL Growth UK 39.9-3.5 HU 25.6-0.6 CZ 7.2 3.2 Ireland 20.2 2.0 Milk 100 80 60 40 20-5 -10 UK Hungary Czech Ireland Hard 90 Cheese 80 70 60 50 40 30 20 10 0 0-20 UK Hungary Czech Ireland -10-20 UK Hungary Czech Ireland
+ Tesco s multi level PL strategy Premium Quality Tesco Finest Price and Quality 5% 61% Special Private Label Organic etc Commodity level Quality Store Name Brand generics etc Tesco Standard growing O 34% Cheap White Label Volume Tesco Value +
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? 1,8 PL focus ineffective PL focus effective The PL share index shows whether Tesco s PL share in a category is higher/lower relative to the country PL share in a category 1,6 1,4 1,2 1 0,8 Batteries Electric Light Bulbs Total Milk Light Duty Washing Powders Potato Crisps Nappies/Diapers Peanut Butter Other Dentifrice/Toothpaste Flavoured Hairsprays Carbonates Dry Dog Food Bitter Heavy Butter Dry Concentrated Duty Washing Fruit Kitchen Squash Still Mineral Water Wet Paper Powder Dog Food Canned Green Beans Canned Peas Dry Cat Salad Food Tinned Dressings Chocolate Tomatos Spread Razor Blades RumShaving Foams & SoapsVodka/Wodka Gin Washing Up Liquids Hard Cheese Carbonated Table Dishwasher Mineral Wine Water Products Bleach Cooking Fabric Colas Conditioners Pure Fats Fruit & Breakfast OilsJuice Cereals Vitamins, Minerals Skin Cleansing and Lotions Shower & Bath Additives Instant Lemonades Plain Soft Coffee & Cheese Savoury Biscuits Canned Tonic Water Sweetcorn Supplements Liquid Facial Frozen Pasta Tissues Jam Soap Oral Care (Mouthwashes Vegetables Mayonnaise & Floss) Frozen Fish Margarine Sanitary & Spreads Protection Frozen Meat Beer Products Ketchups Toilet Soap Shampoo Tampons Frozen Ready Cooked Sweet Biscuits Sanitary Protection Meals Whisky Pantyliners Tea Body Creams/Skin Care 0,6 NB focus ineffective Wet Canned Cat Fish Food Deodorants Frozen Pizza Sanitary Protection Pads Bean & Ground Coffee Processed Cheese Cooking Yoghurts Total Ice Packet Sauces Cream Soup Hair Conditioning Products Instant Drinking Lavatory Cleaners Chocolate Window Cleaners NB focus effective 14,00 16,00 18,00 20,00 22,00 24,00 26,00 28,00 30,00 32,00 Tesco Market Share Tesco s PL focus is not equally effective. Why?
PL strategy effectiveness Soft Cheese Yoghurt 1,25 1,4 1,20 Asda 1,3 Sainsbury 1,15 1,10 Sainsbury 1,05 1,00 Tesco 0,95 Safeway 0,90 0,85 0,80 0,75 0,9 1,0 1,1 1,2 1,3 1,4 1,5 1,6 1,7 1,8 Market Share Index 1,2 1,1 1,0 Asda 0,9 0,8 Tesco 0,7 Safeway 0,6 0,8 0,9 1,0 1,1 1,2 1,3 Market Share Index
Break Down the Drivers Tesco Shoppers vs Competition: PL attractiveness CO-OP SOMERFIELD MORRISONS SAFEWAY ASDA Perceive low value difference and PQ Inference SAINSBURY TESCO Below average Above average
PL category status in the UK 90 Brand Opportunity 80 70 60 corr = 0,75 50 40 30 20 10 Brand Heaven 0 Hard Cheese Canned Green Beans Tinned Tomatos Pure Fruit Juice Carb Min Water Lemonades Canned Peas Soft Cheese Kitchen PaperTinned Fruit Jam Bleach Milk Pasta Tonic Cooking Water Fats & Oils Vitamins, Frozen Minerals Vegetables Bitter Dry Peanut Canned Butter Sweetcorn and Supplements Still Mineral Water Vodka/Wodka Frozen Fish Bean & Ground Facial Tissues Gin Coffee Electric Light Bulbs Dishwasher Chocolate Frozen Ready Canned Spread Sweet Biscuits Salad Dressings Fish Toilet Tissues Products Frozen Cooked Meat Meals Table Wine Rum Frozen Total Pizza Concentrated Products Ice Cream Fruit Mayonnaise Packet Soup Liquid Soap Squash Potato Whisky Hand Creams Crisps Ketchups Tinned Soup Tea Cooking SaucesYoghurts Butter Batteries Washing Up Liquids Other Flavoured Light Duty Washing Lavatory Cleaners Instant Coffee Sanitary Heavy Protection Carbonates Duty Sanitary Protection Window Powders Cleaners Processed Cheese Washing TamponsPowder Margarine Pantyliners Shaving & Hairsprays Foams & Nappies/Diapers Wet Dry Cat Cat Toilet Food Instant FoodSoap Drinking Dry Dog Spreads Food Soaps Colas Dentifrice/Toothpast Noodles Hair Chocolate Beer Conditioning Razor Shampoo Blades Deodorants Products Toothbrushes e Hair Colouring Products 0 0,2 0,4 0,6 0,8 1 PL Attractiveness Index Brand Hell Brand Threat
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 0 10 20 30 Advertising Innov TrustGap ValGap QualGap ProdbyNB 40 50 60 Carb Min Water Instant Coffee Milk Works for PL 70 80 90 Category rank out of all categories Because brands perform lousily on all key drivers of PL success.
Why hard cheese is in brand hell Works against PL 0 10 20 30 Advertising Innov TrustGap ValGap QualGap ProdbyNB 40 50 60 Carb Min Water Instant Coffee Milk Hard Cheese Works for PL 70 80 90 Category rank out of all categories Because brands perform lousily on most key drivers of PL success.
Innovation in Brand Hell
Why yoghurt is (just) in brand heaven Works against PL 0 10 20 Advertising Innov TrustGap ValGap QualGap ProdbyNB Works for PL 30 40 50 60 70 80 90 Category rank out of all categories Yoghurt scores better because of perceived innovation and value gap. Carb Min Water Instant Coffee Milk Hard Cheese Yoghurt
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 dialogue based 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.