1. 31 st Aug 2006 Retailer brand strategy Simon Ford Former Head of Market Research, Tesco UK

2. 2 What am I going to cover?  Tesco’s Private Label journey  Consumer and shopper based strategy  Implications for Private Label and retailer engagement

3. 3 Tesco - the biggest supermarket in the UK, 5th in the world 4 formats Extras ExpressMetros Superstores

4. 4 The birth of Tesco’s success and the role of private label To create value for customers to earn their lifetime loyalty

5. 5 From 40 lines to most food categories And non-food Differentiation into Good/ Better/ Best depends on category and consumer relevance Shoppers want Value and Finest in cards In some categories, packaging is a key shopper driver Standard Private Label similar to category leader Within insurance, Good/ Better/ Best depends on the product (driven by consumer need) Clothing is different again, based on consumer needs – Good/ better/ best through other brand names

6. 6 Lessons learnt  Back the consumer/ shopper, not conventional wisdom  Private Label can drive a retail brand’s positioning, based on an understanding of consumer and shopper needs  These needs are different in each category Common factor is understanding the shopper…

7. 7 Common factor is understanding the shopper  At a strategic level, Tesco business planning ensures Shoppers are at the heart of strategic decision making Shopper insight remains at the heart of operational change Stakeholders are engaged at all levels at all stages

8. 8 Tesco Business Planning Process Phase 1 Engage stakeholders Prioritise key objectives/ hypotheses Phase 2 Develop a prioritised Insight plan that will drive decisions Phase 5 Direct the operational team on each Business Plan Measure progress Phase 4 Calculate sales uplift from each Business Plan, allocate resource Phase 3 Communicate shopper needs simply Be directional with Business plans 10 Shopper Plans p.a. to achieve business growth

9. 9 How is this applied to category?  At a category level, how do you activate shopper needs? Product reality Merchandising and space reality Brand and Retailer image (driven by advertising etc)

10. 10 This is very different for a retailer vs manufacturer  FMCG brands are differentiated by image  Retail brands are driven far more by shopper experience Image Experience Image  So product and merchandising reality is key

11. 11 Product reality is key to private label lines, based on shopper insight  Every line endures rigorous shopper testing Quantitatively tested by a large number of shoppers Tested blind vs competition Benchmarked vs category leader  Cheaper quality products are rejected If a line fails to match the category leader on quality (e.g. taste) it is rejected  After this hygiene factor is achieved, other shopper based levers are pulled

12. 12 In summary, private label succeeds by giving the retailer growth Category growth drivers (based on shopper needs) The retail buyer will consider: What can best deliver this growth (shopper needs) Private Label? Manufacturer brands?

13. 13 But retailers will buy manufacturer brands if they are better placed to do this  Manufacturers need to demonstrate that They understand shopper needs They understand the drivers of category growth based on this Their brands are better placed than private label to deliver this