Within the last ten years, UK FMCG retailing has undergone significant consolidation and more is in the offing. Euromonitor speculates on the future of private label in the UK and the next step for multiple grocers and their private label brands.
Both Tesco and Sainsbury’s are leveraging the trust consumers have in their brands to launch a series of successful new ventures. Taste the Difference and Finest have come to be recognised as integral parts of the larger Tesco and Sainsbury’s brands and draw into their stores a valuable consumer demographic which they then go on to cater to with healthcare, beauty, home care, and finally into housewares and financial services.
Direct access to consumers on a daily basis as well as loyalty card schemes such as Tesco Club Points and more recently Nectar from Sainsbury’s give the top multiple grocers the largest and most detailed consumer databases on the UK fmcg shopper. This combines with the growing media reach of multiple grocers which has gone on to include consumer magazines, e-commerce Web Sites, and more recently a home shopping channel with Sainsbury’s teaming up with NTL to offer more than 15,000 products through interactive shopping.
The explosion of television channels, the result of digital and satellite TV access, has fragmented viewing audiences. Meanwhile the consolidation of major grocery retailers to only three major shareholders has sent branded fmcg manufacturers scurrying to find new media channels to reach consumers. While ad spend among retailers has increased, adspend among manufacturers has fallen. Manufacturers marketing dollars are being shifted away from TV campaigns for which costs have increased dramatically but for which audience numbers have dwindled, into trade marketing including in-store displays and consumer magazine advertising.
The medium is the message
All major multiple grocers from Asda, Sainsbury and Tesco to Somerfield, and the Co-op produce magazines, which focus on food and lifestyle. They contain recipes, give-aways and in the case of Sainsbury’s magazine feature some of the most well known food writers in the UK including Delia Smith and Nigel Slater. These glossy, well presented publications attract significant advertising revenue from virtually all of the major manufacturers.
The reason behind this is simple. Consumer magazines generate high response rates. A consumer magazine presented to the public, which eschews a hard sell message in favour of entertaining and informing the reader is a highly targeted and effective medium to advertise a new product.
Response rates for consumer direct mail is 10% according to the Direct Marketing Information Service. This compared to 78% of consumer magazine readers who buy/try products mentioned in a magazine and 81% of readers who believe consumer magazines are a better way to inform of products/services, according to the Association of Publishing Agencies (APA). In circulation terms Safeway ranks highest among multiple grocer consumer magazines, and is the fifth largest publication in the UK with a total monthly average net circulation of 1,757,190 as of June 2002.
The new manufacturer/retailer relationship
The power of the multiple grocer as an advertising medium was not lost on Procter & Gamble when it decided to forgo the typical route for the launch of its hair care range Physique. Rather than an above the line campaign, it decided to launch the product exclusively through Tesco. While the details of the agreement between the two were not made public, it certainly saved Procter & Gamble considerable marketing money being able to rely on POS displays in Tesco stores and access to Tesco’s consumer magazine which targets ABC1 women aged 25-45.
Tesco meanwhile benefits from exclusive access to a new brand from the makers of Pantene and Clairol Herbal Essences as it seeks to build up its cosmetics and toiletries offering. Multiple retailers exercise direct control over the shopping experience and potentially add value to a brand such as Physique by informing and entertaining as well as selling. Manufacturers such as Procter & Gamble and Unilever have begun to recognise that in partnership with retailers they can better build relationships with customers.
Unilever launched a Persil branded dry cleaning service in partnership with Sainsbury’s through select London stores. It had previously tried to enter the dry cleaning market with the its Myhome dry cleaning company which it later sold, unable to generate satisfactory sales. The Sainsbury’s initiative allows Unilever to work within Persil’s brand values while immediately gaining the trust of shoppers by aligning itself with the Sainsbury’s fascia.
The evolution continues
As the fmcg retail market in the UK continues to consolidate, most recently with the £519m (US$807.1m) purchase by Tesco of the T & S convenience store chain and ongoing rumours of Safeway takeover bids, the multiple grocer will become the dominant advertising medium for fmcg products. Strong private label activity within Tesco and Sainsbury’s focused on premium ranges of foods and building share within cosmetics and toiletries and OTC is driven by the need to attract high spend shoppers, and offer solutions as well as products, thereby developing loyalty.
These retail chains are becoming increasingly integrated in the UK consumer’s life from butter to bank accounts, milk to mobiles and tea to TV home shopping. In an environment where TV advertising is costly and increasingly ineffective and where the value of building customer relationships is paramount, multiple grocers represent an attractive partner in new product launches and marketing adspend.
Indeed manufacturers may find that advertising through grocery multiples becomes less of a choice and more of a requirement if the UK moves closer to the Swedish model where three big grocery chains dominate fmcg retailing. According to Dagens Media, a Swedish media publication, brands are asked to feature in ads for the big three Swedish retailers and to contribute towards the cost of these ads.
Multiple grocers will increasingly dictate new product launches as they seek to exploit their own natural market advantage in short shelf life products and premium food where the success of private labels such as Finest has helped to develop an enviable level of trust with the UK public. Manufacturers will find good partnerships with multiple grocers crucial to the success of new products and exclusivity agreements between the two will become increasingly common.
The final step for UK private labels?
President’s Choice or PC is the private label brand for Loblaws, Canada’s largest multiple grocer. Originally launched in 1983 it was comprised of simple packaged food products but with the growth of Loblaws came exceptionally strong growth for the PC range.
PC moved from simple, low cost products to an increasingly premium offering, building the range to finally include bottled water, pet foods, functional foods, organic foods, vegetarian, the PC home collection (towels, bed linens, and crockery), as well as financial services. PC is sold to non-competing supermarkets within Canada and is sold outside of Canada as a standalone brand in various countries including the United States, Hong Kong, Israel, Columbia, Barbados and Belize.
While Tesco’s Finest may not yet be available outside their own stores, it is following a similar path to growth by diversifying into non-food sectors, and focusing on offering highest quality food rather than competing with brands on the basis of price. The next step in this model may not be too far away for the UK’s largest retailers.
Related research reports
The Market for Packaged Food in Canada
Euromonitor Profile: The Procter & Gamble Co
Euromonitor Profile: Unilever Group