Monday, May 18, 2009

Strategy Session: Tesco's Fresh & Easy Needs to Move From its One Store Brand Fits All Strategy to A 'Three Brand' Store Brand Strategy

Tesco's Fresh & Easy Neighborhood Market uses its fresh&easy private label brand on every store brand item in its stores regardless of retail price point or ingredient profile, including premium, specialty, natural and organic products, as the photogrpah above offers an example of. We suggest the grocery chain create two new store brands: One for premium-specialty products and another for natural-organic items, thus giving the retailer what we call a three brand store brand strategy.

Analysis & Opinion: Tesco's Fresh & Easy Neighborhood Market and its Store Brand(s)

Tesco's Fresh & Easy Neighborhood Market currently uses a one brand name fits all strategy for its store brand merchandising and marketing strategy, with just one very minor exception.

That exception is that in February the grocery chain began merchandising a limited selection of fresh meat and poultry items under the "Buxted" store brand, which it's using as a value or price-focused store brand for the fresh meats category. (We haven't conducted any empirical research on the "Buxted" brand for the price-focused fresh items. But to us the brand name sounds far more "upscale" or "premium" to our ears than it sounds "value" or "low price." [See - March 9, 2009: An English Village, A British Fresh Chicken Brand and Tesco Fresh & Easy's New 'Buxted' Discount Fresh Meat Brand: What Do All Three Have in Common?]

All of the store branded items in the Fresh & Easy stores -- and store brands comprise about 60% of all the SKUs in the markets -- are branded with the fresh&easy name. This includes all store product categories -- dry grocery, perishables, packaged fresh produce (which is nearly all the produce in the stores), fresh, prepared foods, non-foods and fresh meats -- accept for the "Buxted" items.

Single store brand strategy a mistake

We think using the fresh&easy brand name only for its store brand items is a mistake for Tesco's Fresh & Easy.

The main reason this is our analysis is we argue that using a one store brand name fits all strategy allows for zero brand differentiation between discount or value-priced, natural and organic, and premium and specialty items in the stores. There's no brand differentiation among the store branded items based on their retail price, quality or ingredient contents. They are all fresh&easy.

It's our analysis that this unitary and undifferentiated store branding item strategy creates confusion in the minds of shoppers, as well as fails to offer Fresh & Easy the ability to differentiate -- and thus sell more -- it various products based on creating consumer perceptions built on the brand name, which is what packaged goods branding and marketing is all about after all.

The Safeway example

As an example, Safeway Stores, Inc. uses various brand names for its private label products depending on various criteria. The grocery chain uses the "Safeway" store brand name on its value-priced grocery and non-foods items.

It uses the "Lucerne" brand name on its value-priced dairy and perishable items.

And Safeway uses the brand name "Basic Red" for a line of store brand "branded generic" (meaning the most-price-focused line) items, such as paper goods and other non-foods products.

Safeway also has a separate brand name, "Safeway Select," for its perishable and dry grocery premium and specialty items.

Additionally, for Organic products Safeway uses the "O 'Organics" brand name, and it even has a separate brand name, "Eating Right," for its extensive line of healthy and natural items.

The Pleasanton, California-based supermarket chain also uses "Safeway Artisinal" for a select number of upscale specialty products in its fresh bakery and deli departments.

And it uses the brand name "Ranchers Reserve" to designate its Angus variety of store brand beef, for example.

While at this point in time we don't suggest Tesco's Fresh & Easy adopt as extensive of a store brand strategy as Safeway Stores' does -- after all Safeway has about 1,755 stores in the U.S. and Canada, with annual sales of over $40 billion, while Fresh & Easy has 120 stores with annual sales of about $300 million in the U.S. (although its parent Tesco has annual global sales of about $80 billion) -- our analysis leads us to suggest and argue that Fresh & Easy Neighborhood Market does need to expand its one store brand -- fresh&easy -- fits all products store brand strategy to, at a minimum, a three store brand strategy for now.

The three-brand store brand strategy

Here's what we suggest:

First, for now we would retain the fresh&easy store brand name.

We would use it as the chain's value-priced store brand across all categories -- from dry grocery and prepared foods, to fresh meats, perishables and fresh produce. In other words, instead of being "everything" like it is now, brand fresh&easy would be the chain's price-focused store brand.

We would get rid of the "Buxted" store brand. It's only a few months old and nobody likely would even notice if it was eliminated.

The brand name just is wrong for a price-focused fresh meats line in our analysis. It sounds stuffy, even upscale, rather than saying "value" or "low-price."

A new premium-specialty products' store brand

Now that we've established fresh&easy as the price or value-focused store brand, we would then create a new store brand for all of the premium and specialty items currently branded with the fresh&easy name. We would use the brand name across all store categories on items that fit the premium or specialty classification.

This premium and specialty category brand name should not have fresh&easy as a part of it. Rather, just as if it was a manufacturer-marketed packaged goods brand, it should merely have a name. For example, Target uses Archer Farms and Choxie for its premium and specialty store brand items. Kroger Co. uses "Private Selection" as its premium and specialty foods store brand.

Creating a new brand name for the fresh&easy premium and specialty food and grocery items does a couple key things for the grocery chain in the store brands arena.

First, it allows a merchandising separation between the price-focused (the fresh&easy store brand) items and the premium and specialty items. This is key in consumer packaged goods marketing.

Second, it allows Tesco's Fresh & Easy much more merchandising opportunities (which it would have to take advantage of to make work) than it now has.

For example, by branding its premium and specialty items with a new brand name, confusion no longer exists between say a lower priced (and quality) fresh&easy brand chocolate bar and a fresh&easy brand higher-quality premium chocolate bar in terms of the two same brand chocolate bars having significantly different retail price points and ingredient profiles. Consumers are used to premium items having different brand names than price-focused items.

Based on our research and observation we believe that such confusion exists among many consumers that shop at Fresh & Easy markets in regards to the unitary fresh&easy brand name regardless of the price or quality of an item. We think the shopper confusion exists across all fresh&easy branded item product categories and ingredient profiles. The chocolate bar example is merely a convenient and we think illustrative example.

Having separate brand names for store brand price-focused and premium-specialty items allows for better merchandising, pricing, merchandising and marketing strategies for a food retailer. In addition to lending to better product differentiation among shoppers, doing so also gives the retailer far more merchandising, retail pricing, marketing and promotional ammunition.

A new natural-organic products store brand

Next we would create a new, separate brand name for all of Tesco Fresh & Easy Neighborhood Market's natural and organic food and grocery items, including natural and organic fresh foods, which are currently branded under the fresh&easy name, like all of the grocery chain's store brand products are.

Like with the premium and specialty items, this allows for greater product differentiation in the minds of consumers. It also, like with the other examples, allows for far superior retailer merchandising, pricing, marketing an promotional strategies.

Right now, the only difference between a fresh&easy store brand conventionally-grown food item and an organic item is the price, along with the name "organic" (or "natural) being stamped on the fresh&easy item package. From a packaged goods merchandising and marketing perspective this creates confusion in the minds of shoppers.

For example, this is why Safeway created its hugely successful "O Organics" store brand, which it uses for its organic food and grocery items across all store categories -- from dry grocery and perishables to fresh produce. It's all about packaged goods brand marketing, regardless if its a retailer doing the brand marketing or a classic packaged goods company like P&G or Kraft.

In terms of creating a new store brand for its natural and organic items, Fresh & Easy actually might not even need to create the brand name. Instead it could purchase a brand name that has years of brand equity behind it in the natural and organic products segments.

How about the 'Wild Oats' brand: It's for sale?

Whole Foods Market, Inc. put up the "Wild Oats'" brand name and related intellectual property for sale in March, as a result of a settlement it reached with the U.S. Federal Trade Commission (FTC) regarding the anti-trust case filed by the agency over the natural grocery chain's 2007 acquisition of rival Wild Oats Markets Inc., which was based in Boulder, Colorado. [See- March 17, 2009: Store Location Strategy: Whole Foods Market-FTC Settlement Agreement Puts 32 stores on the Market; What Should Tesco's Fresh & Easy Do About it?]

The majority of the Wild Oats' stores (over 100 total) were based in the Western U.S., where Tesco's Fresh & Easy has its 120 combination grocery and fresh foods markets.

In our analysis, even though Wild Oats no longer exists as a food retailer -- it's stores are part of Whole Foods Market, Inc. now and all branded under the Whole Foods banner -- the Wild Oats' brand name still has equity, particularly in the Western States. Wild Oats was pretty strong in Arizona, Nevada and Southern California, which are the three market regions Fresh & Easy operates in.

The Kroger Co. also sold the Wild Oats' store brand natural and organic products in most of its U.S. supermarkets nationally for a number of years, under a special contract with then Wild Oats Markets Inc. Kroger only stopped doing so when it came out with its own store brand of natural and organic food and grocery products just a few years ago. In fact, Kroger "went to school" on the Wild Oats' branded items it sold in its stores, using the sales data and other related information to help it create its natural and organic store brand.

The Wild Oats brand name is still for sale. And we think it could probably be purchased for a fairly reasonable amount of money by a retailer such as Tesco's Fresh & Easy.

Under the settlement agreement, Whole Foods Market, Inc. and the FTC have establish a special trustee who is handling the sale of the "Wild Oats" brand, along with various stores being offered for sale. The trustee arrangement was designed so that Whole Foods Market can't hold out for a certain price for the brand, perhaps as a way to keep it off the market. [ Store Location Strategy: Whole Foods Market-FTC Settlement Agreement Puts 32 stores on the Market; What Should Tesco's Fresh & Easy Do About it?]


What we're suggesting at this point in time is that Tesco's Fresh & Easy move from its one brand name fits all store brand strategy -- everything branded fresh&easy -- to a three store brand name strategy -- the fresh&easy brand for price-focus (which would still be the majority of items in the stores), a new store brand name for premium-specialty food and grocery items, and a third new brand name for organic and natural products, including potentially buying the "Wild Oats brand from Whole Foods, or creating a new brand name outright.

We also suggest eliminating the "Buxted" store brand name for the reasons given earlier. We suggest this strongly as part of the three store brand name strategy.

The fresh&easy brand name would return to those price-focused chicken breasts and steaks that have been carrying the "Buxted" brand name since February of this year.

And since Fresh & Easy Neighborhood Market would be creating a new store brand name for all of its premium and specialty items (across all store categories), instead of using a name like "Buxted" for a handful of value-based fresh meats, it would then do the reverse: it would brand the more premium cuts of meat under the new premium-specialty store brand, which is how such a retailer store branding approach really should go anyway. You create a special brand name for your more upscale items rather than a new brand name for just a few price-focused ones.

Another alternative would be to create a new brand name for the premium fresh meats rather than use the new category-wide premium-specialty store brand name. Both options create differentiation.

But you want to "differentiate" the premium meat items, not the price-focused ones because, according to Tesco's Fresh & Easy, all of its fresh meat items -- like all of the fresh&easy branded items in the stores -- have everyday low prices. If that's true, then why a price-focused discount fresh meats brand -- "Buxted." Brand fresh&easy is "value" after all, isn't it? See the potential confusion? That's why you "new brand" the premium, not the majority fresh&easy brand meat and chicken items.

The same principle applies throughout the store categories.


Our store brand strategic scenario for Tesco's Fresh & Easy is, as we said earlier, for this point in time. It takes into consideration the current (and near and mid-term future) number of Fresh & Easy stores and the chain's current limited sales volume. (You can't really do a Safeway program yet, if ever.)

But creating this three store brand strategy is very important for the grocery chain, particularly because Fresh & Easy relies so much on its store brand -- the 60% -to- 40% store brand to national brand SKU ratio.

As an example of another grocery chain that relies heavily on store brands, look to Trader Joe's, which like Fresh & Easy is a small-format retailer. The grocer has numerous, not one, store brands: multiple store brands for natural, for organic, for Italian products, for certain perishables, ect.

The small-format Aldi USA grocery chain also uses a multiple store brand strategy. It even has separate store brands for gourmet products, Asian foods and Italian food items, along with a store brand for price-focused items, and a couple others.

Tesco's Fresh & Easy publicly says the grocery and fresh foods chain's less than stellar sales to date are do almost completely to the current economic recession. The recession is also the reason it gives for dramatically slowing its new store openings and postponing indefinitely its Northern California market region launch.

We disagree.

In fairness we will attribute say 40% (and we feel that's liberal) of the performance problems at Fresh & Easy to the economic recession, which the grocer's senior management should remember will eventually be over.

That leaves the majority 60% due to internal factors however.

That 60% is simple in our analysis and opinion: It has to do with poor overall merchandising, marketing and operations strategy and implementation at Tesco's Fresh & Easy, the responsible parties being those at the very top of the corporate chart.

For example, the grocery chain still has very serious out-of-stock problems in many of its stores due to problems with its continuous replenishment ordering system and its supply chain logistics process. (more on that in detail in an upcoming piece in Fresh & Easy Buzz.)

On the operations end, Tesco's Fresh & Easy says the recession is the cause of its less than stellar sales performance but refuses to take manufacturers' "cents off" coupons or accept WIC (Woman's, Infants and Children's program) vouchers in any of its stores, even though manufacturer-issued coupon use is at a modern era all time high among consumers, and the U.S. Federal Government recently added nearly $3 billion dollars to the WIC program for poor mothers as part of the economic stimulus package. [Suggested reading - March 7, 2009: Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track.]

And from a strategic merchandising and marketing perspective, Tesco's Fresh & Easy has thus far failed to come up with a solid, comprehensive overall merchandising and marketing positioning strategy for the Fresh & Easy format and stores, and then communicate such a strategy to consumers in its markets in a simple, clear way.

The grocery chain needs to address, define and then clearly communicate these types of marketing themes: What is Fresh & Easy -- the format? What makes Fresh & Easy Different - differentiation? Why should I shop at a Fresh & Easy store? What are the benefits of doing so?

These are all internal issues or problems, not economic recession-caused.

In addition, in our analysis the one brand fits all store brand strategy is one of these internal problems. It's far to simplistic, particularly for a retailer like Tesco, which is the third-largest food and grocery retailer in the world.

Many brand marketers and brand researchers, such as Tom Pirovano of AC Nielsen, believe that grocery chains should completely disguise their store brands, not using the name of the chain in the brand name at all.

For example, in a May 13 post in Nielsen's "The Shopper Wonk" Blog, Pirovano offers retailers 11 tips to grow their store brands. His tip number two is this: "Disguise your premium store brands. Many consumers still associate private label with cheap knockoffs. There – I said it. But what if they don’t know it’s a store brand? Look to position premium store brands as exclusive products like Choxie at Target and Canopy at Walmart." [You can read his full post here.]

We agree in large part with Pirovano's analysis regarding store branding. But there are also very successful exceptions, particularly when using a chain name on one brand as part of a multi-store brand strategy such as what Safeway and Target are doing. Like Safeway, Target uses its name -- "Target" -- for its price-focused store brand of packaged goods, then uses the other brands like Archer Farms and Choxie.

In the case of Tesco's Fresh & Easy, it's our analysis that the fresh&easy store brand will work fine for the near -to- medium, and perhaps even long term, as the grocery chain's price-focused (which means majority item) store brand. In fact, as the price-focused store brand we think it offers some benefits to the grocery chain, particularly right now and over the next couple years, in the area of creating name awareness overall for the Fresh & Easy retail brand, which it needs as a relatively new entrant to the markets it's in.

But this is our position only as part of the three store brand strategy we describe in this piece.

Once the two new store brands -- the premium-specialty and natural-organic -- have been created and slotted, we then suggest Tesco's Fresh & Easy go from there to create additional store brands -- but in a very careful and methodical way over time -- that would add value, achieve stronger product differentiation and give more meaning to the store's merchandise mix and marketing strategy.

We haven't been extremely impressed with Fresh & Easy's from the top store brand strategy thus far. So we would strongly suggest bringing in consultants with actual experience in the Western U.S. markets, and in store branding, before doing any brand creation, such as the recent creation of "Buxted," which actually isn't a brand creation but the use of a brand from Tesco Fresh & Easy's fresh foods supplier, United Kingdom-based 2 Sisters Food Group, which is Fresh & Easy's in-house supplier.

This observation is also one of the reasons we think buying a brand like "Wild Oats" could be a very good idea for Tesco's Fresh & Easy, then rebranding all of its current (and new) natural and organic products under the "Wild Oats" brand. We would do this across all store categories -- from dry grocery to fresh, preapred foods. Any item that's "natural" or "organic" would get the "Wild Oats" brand.

We believe that moving to this initial three store brand strategy will better position Tesco's Fresh & Easy in the store brands arena in many ways, as we've detailed throughout this piece.

Doing so also offers a much richer ability to price, merchandise, market and promote store brands.

And most important, we think the strategy will over time provide much more shopper brand differentiation vis-a-vis the current single fresh&easy store brand, and that with all things being equal, the net result will be increased sales and more return customers to the Fresh & Easy markets, including many more consumers than currently is the case that will shop the stores in part because of its store brands selection.

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Anonymous said...

In the UK Tesco have many market positions. Wikipedia writes "According to Citigroup retail analyst David McCarthy, "[Tesco has] pulled off a trick that I'm not aware of any other retailer achieving. That is to appeal to all segments of the market". One plank of this strategy has been Tesco's use of its own-brand products, including the upmarket "Finest", mid-range Tesco brand and low-price "Value" encompassing several product categories such as food, beverage, home, clothing, Tesco Mobile and financial services."

In addition Tesco now has a range just above Value with many different names (depending on the product (such as Packers Best for tea bags and Country Barn for corn flakes. This is to compete with Aldi/Lidi

Fresh & Easy Buzz said...

Yes, Tesco-UK uses a multi-store brand strategy, which makes it an even more compelling argument that Tesco Fresh & Easy should do the same.

Many other retailers, both in the UK and U.S., do the same. The "pull off a hat trick" is a bit of an overstatement though.

Anonymous said...

Very much agree on your point on F&E and three brand strategy too. Many grocers localize their stores (i.e., Kroger has an upscale/mainstream/value store segmentation).

The issue is that it’s easier to cut the assortment down than it is to “refine” it when you have fewer SKUs… Plus, it gets harder on the smaller stores because their biz model is all about rotation since they have fewer SKUs to begin with, so not a whole lot of room to play with.