What we can learn from Tesco

Tesco are the clear #1 in the UK, holding 27% market share, with Sainsbury’s next best at 16%.  Industry sentiment has been that Tesco in the UK is well run, delivering decent financials and performing creditably in a challenging environment.  So how are they doing this, and what can we learn from them? 

With Aldi and Lidl continually adding stores and building market share, any competitor of scale needs to fight on two fronts.  To win, even to survive, requires affordability (relative to Discounters) AND product or service differentiation.  Tesco need to convince shoppers that despite all the noise, they are not that much more expensive than the Discounters AND they offer something significantly different and better.

To convince on value, they have done three things.  First, the Exclusively at Tesco brands, such as Redmere Farm Produce and Willow Farm Chicken, which look to match Discounter equivalents at very keen prices.  Sainsbury’s have followed suit, and both companies seem committed, suggesting it is working for them.  Second, Tesco use attention grabbing promotions.  They have tried to match Aldi’s formidable Super 6 Produce promotion with a similar mechanic, without yet achieving the same impact.  They are also occasionally offering the popular 3 for £10 on Meat on gondola end (though only across a small number of lines now).  Third, they reward loyalty with lower prices.  Clubcard Plus offers 10% off two shops a month, plus a continuous 10% off some Tesco own brand non-food.  For careful shoppers spending a lot, the overall impact on price is significant.

To convince shoppers on differentiation versus Aldi and Lidl requires a clear choice on where and how to differentiate.  You can’t differentiate on everything, so you have to make some bets.  Tesco have clearly bet on Plant Based, as a growing UK food trend.  First, they have developed a very credible range, with two Exclusive to Tesco brands – Plant Chef (everyday) and Wicked Kitchen (foodie) - plus an authoritative range of independents (Naked Glory, Vivera, Richmond, Like Meat). Second, they have dedicated, colourful bays in Meat, Fish and Poultry and in Prepared food.  Third, they have supported with shopper marketing, which in January included a prominent gondola end in the Value Aisle and a Love Story meal idea.  Shoppers miss a lot of what we would like them to see in stores, but it isn’t easy for them to miss Plant Based in Tesco, because Tesco have made a bet, and done it properly.

So how are Tesco sustaining performance?  Defending on price (discount brands, attention grabbing promotions, Clubcard Plus) and then betting on specific areas where they will differentiate – right now, in Plant Based (product innovation, in store visibility and shopper marketing).

#1 is there to be shot at but Tesco have clear strategies to limit the damage, that we can learn from. 

Jeremy Garlick is a Partner of Insight Traction, consulting with FMCG and Retail companies.  He was formerly Head of Insight at Sainsbury’s, Waitrose and Premier Foods.