Private Label Case Study: Tesco

Jim Hertel, the senior vice president of retail consultant Willard Bishop, spotlights international retailer Tesco PLC’s Fresh & Easy concept, which at presstime had been rolled into eight stores in Phoenix, with 26 more planned.

Hertel noted that Tesco’s use of private label brands "turns a lot of conventional wisdom upside down. Many food retailers use two- or three-tier private label strategies to improve price image, blend out category margins, and differentiate to drive shopper loyalty. They will use a consistent approach across categories of private brand offerings and price relationships to national brands. Rarely do private brand priced exceed national brands. Tesco takes a different approach.

 "As expected," Hertel said, "there’s a very strong tilt toward private brand product under the Fresh & Easy label storewide. But how that emphasis is demonstrated in assortment, space and pricing varies widely by category. For example: Beer, salty snacks, laundry detergents and non-alcohol beverages are dominated by national brands. Pasta sauces have only two national brands represented by four SKUs, while the Fresh & Easy brand has over 75% of items and space. What’s more, the private brand sauce is priced at a 45% premium compared to the national brand."

Fresh & Easy Mac ‘n Cheese is priced 14% above the leading brand, he reports, "and in most fresh categories only private label product is available.

"While strong values are offered throughout the store, give the private brand emphasis and disparate pricing approach, Tesco faces price communication challenges," Hertel points out. "They’ve opted to use national brands as ‘known-value items,’ which are highlighted with shelf-edge signs that directly compare Fresh & Easy prices to those of named competitors. In-store circulars also call out attractive prices on national brands."

At the checkout, Hertel said, "customers receive a customized price comparison on what they’ve just bought to those of named competitors, reinforcing Tesco’s price image."

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