Tesco has launched a major range review across its entire fresh and packaged food lineup, under a new reset programme called ‘Fit for Growth.’ The review is expected to have a significant impact on suppliers, as Tesco looks to reduce costs and improve efficiency. However, the challenge for buying teams and a warning to Tesco is that as shoppers spend more of their share of weekly spend in supermarkets and inflation bites, offering innovation & treats which increase penetration is important. According to Kantar shoppers are looking for affordable indulgences. There were 699m in-home snacking occasions vs pre-covid (Kantar, MAT to Aug 22 vs Prev).
I was shopping in my local Tesco last weekend and there were several categories where range had clearly already been cut including categories such as dairy & MFP. Contrary to shopper behaviour in previous recessionary times I did not just switch and look for substitutes in the category; I purchased products in another retailer, and I suspect I am not alone with this behaviour (Discounters have their highest ever share). Indeed bricks and mortar shopper occasions are up +23m (NielsenIQ, April 23) and shopper trips in-store are also up +3.7% (NielsenIQ, April 23); it is clear shoppers’ repertoire of stores is increasing as they seek value but also innovation and Tesco needs to be careful that range cuts don’t just drive switching to other retailers.
So, what is Tesco doing? The range review will focus on four key areas:
- Product range: Tesco will be looking to reduce the number of products it sells, focusing on duplication and low-performing lines – however, the risk here is that certain products will appeal to key shopper groups who have a halo spend effect on basket spend in- store.
- Macro Space: categories under-trading and over-trading will also be reviewed, as the retailer is looking at macro space vs opportunity – this could provide the base for an interesting conversation on growth for some brands.
- Pricing: Tesco will be reviewing pricing across all tiers, with a view to making its prices more competitive. – however, Tesco and brands need to balance price with building base and repeat sales vs investing in innovation / products that drive penetration.
- Promotions: Tesco will be looking to improve the effectiveness of its promotions, by making them more targeted and by reducing the number of promotions that are run – thought should be given to promotional objectives – reducing promotions and excluding some products from promotions may also harm shopper penetration and drive further switching to discounters. (Growing by +7.5%, 4 weeks to April 2023 vs LY vs Grocery Mults. at +0.8%, NielsenIQ).
What Suppliers Can Do to help Tesco make the right category decisions?
Suppliers should be prudent in preparing for the impact of the Fit for Growth range review & can take steps to mitigate the risks, for example:
- Review product range: Suppliers should review their product range to identify poor performing products or those that are uncompetitive on price. These products could be considered for switching…what innovation is available (with category rationale relevant to Tesco) can be proposed to the buyer?
- Review promotions: suppliers should review the promotional effectiveness; what are the objectives for a promotion? What are the best promotions by product?
- Work with Tesco: it is important for suppliers to understand what are the category objectives and buyer KPI’s relevant to the category that Tesco are focused on? How does the category stack up to Tesco’s competitors? Suppliers should work with Tesco to understand the company’s needs, using data from the Tesco insight platform and other data providers such as Kantar, Nielsen, IRI etc. to understand shoppers, trends and to develop solutions that are mutually beneficial.
Working collaboratively with your buyer to help grow the category is the best approach as the ‘Fit for Growth’ range review. Suppliers who take steps to mitigate the risks will be in a better position to weather any storm. Having category expertise on your side can help! Whether you are a brand looking to defend and grow your range or a new brand looking to target working with the retailer, we can help – please get in touch…
