TESCO VETERAN DECODES SUCCESS

MICHAEL GARRY

CHICAGO -- Tesco's command of the United Kingdom's supermarket business rests in part on its dedication to -- and dominance of -- private label, according to a former executive who outlined the evolution of the retailer's efforts during the Private Label Manufacturers Association's 2003 "Store Brands Confidential" trade show and exposition.

Christine Cross, Tesco's former group business development director, left the company last June to become an independent business adviser.

As the U.K.'s largest supermarket chain, Tesco has developed one of the biggest and most aggressive private-label programs in the world, she said, acknowledging one of its chief rivals, Marks & Spencer, is also known for "own label," as it's called in Britain.

Tesco, based in Cheshunt, Hertfordshire, England, operates 2,291 supermarkets, hypermarkets and convenience stores in 10 countries, almost 2,000 in the U.K. Its private-label program, which dates back to 1950, today generates 60% of its $39.5 billion in annual volume, Cross said.

To maintain its leadership position, Tesco constantly adds new private-label products. Most recently, in late September, it added 250 new food and nonfood products to its top-tier Finest assortment, or "range" in the U.K., pushing the total to 1,250. Cross said that since the early 1990s Tesco has rolled out up to 500 new private-label products annually.

The overall intent of the program is to "grow sales, create customer loyalty and provide a unique sales proposition to ward off the competition," she said. Private label has also afforded a "significant margin advantage" over branded products, Cross said. Tesco expects to increase its private-label volume outside the U.K. to 40% of sales.

Of its private-label volume, 61% comes from its Standard Tesco brand, with the rest coming from its low-price Value brand and premium Finest brand.

Cross outlined some of the attributes of each tier: Standard products are equal in quality and packaging to branded products but priced 10% less; Value items must match the lowest-priced products in the marketplace; and Finest items include the majority of chilled ready-to-eat prepared foods.

"Price is secondary to innovation, the ability to stand out," she said.

A store's mix of the three brands depends on shopper demographics. Value and Finest items "have generated incremental sales that weren't there before," she said.

Cross also identified three key factors behind Tesco's huge private-label development: brand strategy, supplier selection and consumer feedback.

She made it clear that Tesco, after some missteps in the 1980s trying to cater to fashion or lifestyle trends, developed a no-nonsense approach to private-label branding that led to the formation of its three "pillar brands." Those brands, she stressed, must have "a clear commercial proposition," targeting a "price position, market expectation and category participation goal."

To ensure lasting appeal, all of Tesco's own labels must share common values that "epitomize the organization," she added. Those values include "understanding customers, creating innovation and delivering unbeatable value."

In its pursuit of quality in private label, Tesco needs consistency and commitment from its supplier base. "So the manufacturers in this room are the most important people to the retailer who wants to develop private label," she said.

In addition to the usual criteria by which suppliers are judged -- safety, hygiene, financials -- Tesco looks for suppliers who "understand our customers and could be flexible in responding to our product development needs," Cross said.

She cited the example of a "superb sausage and pie supplier," who, after that market declined, was willing to also produce Christmas cakes and puddings.

It was also important for Tesco to trust its suppliers enough to disband its in-house product development team in the mid-1990s and push much of the development work out to its suppliers, she said. Tesco also decided that to maintain objectivity about its private-label products, it couldn't benchmark them through "our in-house team, our chairman or our chairman's wife." Thus, it established six consumer paneling centers around the U.K., assembling groups of 112 consumers per product.

Recruited from Tesco stores, consumers are used to benchmark against such features as quality, flavor and texture, as well as how often they would buy a product, occasions they would use it for and interest in line extensions. Panels are also used to run quality-control tests after a product launch.

"This is an independent process -- buyers aren't privy to it, nor suppliers," she said.

New private-label products, she noted, need to clear "hurdle rates" or sales targets -- or they are de-listed. "It's tough to do but important to avoid [assortment] proliferation," Cross said.

Tesco's private-label brand is so well trusted that it has been extended to such areas as personal finance, credit cards, loans and insurance, she said.