Tesco and Sainsbury's show how to exploit drinks private labels

The success of Tesco and Sainsbury’s private-label drinks products in the UK cannot be denied. In a time when many companies are tightening their belts and streamlining their product mix, these supermarket retailers are expanding their own-label (to use the standard UK term) drinks range – and consumers are benefiting.

Sainsbury's currently operates 828 stores throughout the UK, while Tesco dominates with 2,482 sites. While Sainsbury's might lag far behind Tesco’s dominance, especially when it comes to expansion abroad, both of these strong retail players do have a number of similarities in terms of their private-label policies – and they offer a relevant global model.

Both companies grew their private-label offerings over the last year, in spite of the recession. “We continue to innovate across our range – over 2,600 new or improved own-brand food lines were launched in the UK over the last year – and have always worked with suppliers to deliver innovative and exciting products for our customers,” says James Wiggam, Tesco's corporate affairs manager.

According to Tesco’s annual report, 500 of these new drinks and food products are part of their ‘Discount Brands at Tesco’ initiative. Tesco launched this discount range in 2009, adding it to its existing own-label core options: Tesco Value, which is the entry-level brand, the traditional Tesco own brand, and Tesco Finest, which offers higher-quality products. Wiggam believes this tier system follows a “good-better-best” hierarchy.

Like Tesco, Sainsbury's also follows this three-level system with its core selection: ‘basics’, ‘standard’, and ‘Taste the Difference’. The company was well aware of the recession’s impact on shopping funds and took this into consideration when growing its private-label product mix. In May 2010, Sainsbury's reported: “In a year in which household budgets were under pressure, several initiatives promoted value for money. We expanded our entry-level ‘basics’ range with 140 new products last year and now have over 700 products in the range. Within the new additions were JS [John Sainsbury] basics water (6x500ml) and JS basics apple juice drink packs (9x250ml).We expanded our entry-level ‘basics’ range with 140 new products last year and now have over 700 products in the range.” Both companies also have a number of specialised lines, such as organic products.

Sainsbury also grew its own-label wine offering this year. Its 24 new house wines are priced under GBP5 (US$7.30) and are targeted at consumers who are unsure what to buy in the wine aisle. Sainsbury has seen much success with its own-brand wine and the company prides itself on the quality of wine it offers. “Sainsbury’s wines are produced by some of the best wineries in the world from Chapoutier in France to St Hallets in Australia,” said Elizabeth Treversh, a representative from Sainsbury. “We work directly with these wineries to select the best possible quality and style of wines that our customers will enjoy.” She went on to add that their own-label wine is sourced from a number of places. “[Our own-label wine is produced] in all the major wine producing regions of the world such as France, Spain, Italy, Australia and Chile and also some lesser known regions and countries such as the Douro in Portugal.”

Treversh also commented: “Our wine sales are growing faster than the market with Sainsbury’s own brand having a key important role in driving this.”

Meanwhile, Tesco has undertaken green initiatives with its private-label drinks packaging – but in the form of a label rather than a reduction. The supermarket chain is focusing on its carbon footprint and making buyers aware of its efforts. “We have put the carbon footprint label on 120 own-brand products since April 2008, including orange juice…,” said Wiggam. “Our research has shown that customers welcome the labels. There is good understanding of the term ‘carbon footprint’ and almost half of the people researched say that they are thinking about the environmental impact of the products they buy.” The labels display the quantity of CO2 released into the air by the manufacture and distribution of the items.

The two chains work closely with their own-label suppliers. Dr Ronald Goldsmith, the Richard M. Baker Professor of Marketing at Florida State University, believes there are a number of benefits to suppliers in having a private-label contract with a major chain. Besides making full use of production and boosting profits, it allows the supplier to avoid raising its own brand’s prices. It can also differentiate by “producing custom formula product for clients that might be different from their own brand by using different ingredients or proportions or processes”. When it comes down to it, “you want to be the seller of that that [own-label] brand and not let a competitor sell it,” said Goldsmith.

Tesco defines its locally sourced goods (for its UK stores) by county and tries to work with smaller family-run farms/producers in the various counties it operates in. When it comes to drinks apple juice, cider, and beer are among the most common drink products sourced locally.

While Sainsbury might be content to expand in the UK, Tesco has an increasing international focus. This global brand has stores in 14 different countries and 65% of its sales space is now situated outside of the UK. The extent to which the company tailors its offerings and marketing to the local scene varies country by country.

Tesco’s US offering, the Fresh & Easy Neighbourhood Market, is clearly tailored to the West Coast eco-conscious crowd. The company undertook local research before opening its doors in 2007 and everything from the energy-efficient lighting to the private-label organic lemonade on the shelves screams ‘eco-friendly’.

The 150-store chain pushes its social and environmental awareness in all locations and although value is a key factor it also promotes the healthy, organic nature of its own-label brands.

Moving forward, Euromonitor International believes that own-label brands will have to be more creative when competing with their national counterparts – something that Tesco and Sainsbury are already doing. The global research firm cited the example: “Tesco and Sainsbury already introduced double concentrate squash, in 2008 and 2009 respectively, which enables consumers to get twice the amount of diluted product but for less than double the price of normal concentrates. This is an example of how private label is becoming more innovative and in future this trend will continue as retailers will no longer be able to drive growth simply by copying mainstream brands.”