Precisely 14 days before the general election, Tesco summoned its top 300 to 400 suppliers to an audience in Birmingham. There it announced a sea change for the grocery industry whose effects will, if anything, be more radical than the British public’s decision to opt for the first fully-fledged Labour majority for 31 years. Just as the British people were deciding to put the past behind them, so Tesco was declaring the end of a trading environment that has dominated the industry for decades.
Adversarialism is out, it declared. Copycatting would go, and brand manufacturers’ endless pleas for data about the brands’ performance in store would be granted. Even more important,Tesco extended an invitation to put the battles of the past behind us and find ways of working together.
Tesco’s copycatting move has been interpreted by some as a retreat. It is quite the opposite. If anything, it is going to intensify the pressure on brands, not reduce it. But to see why, it has to be put in perspective. At the heart of the Tesco move lies an acronym that most packaged-goods marketers still dismiss – at their peril – as a boring side-issue best left to the logistics boys: efficient consumer response (ECR).
Inspired by ECR thinking, retailers are transforming their attitude to category management. They are ceasing to regard it as a technical, tactical issue of determining the optimum range and display for a piece of shelf space and realising instead that the signals each category sends in terms of pricing, quality, choice, and so on, play a central role in attracting (or failing to attract) its particular target market. As a recent ECR Europe best practices report stresses, under ECR, category management is a strategic “top-down” decision, a mechanism by which retailers can differentiate themselves from their competitors.
Over time, this shift will force every packaged goods marketer to reconsider every element of their marketing strategy. Start with the symbolic stuff – copycatting. Tesco is not “giving in” on copycatting. It is signalling that it is no longer going to hide in the shadow of brands as a me-too but will, in future, proudly present Tesco’s unique marketing positioning. It will become a central reason for making Tesco the destination store.
But that’s just the start. Under ECR-inspired category management, the retailer’s view of manufacturer brands is transformed. The old view was that brands help to attract footfall and deliver a certain quota of margin per square foot. The new view adds a qualitatively different element, which asks: “How can this brand (and this brand manufacturer) help me to improve my margins as well as develop a unique, differentiated marketing platform?” For brands, whose entire raison d’Ãªtre has been that they are national, universal, ubiquitous and uniform, this is a complete reversal. The question is no longer what can this channel do for my brand but what can this brand do for my channel?
Here are some of the implications. First, retailers no longer simply want to buy cheap and sell dear. Increasingly, what they are seeking from brand manufacturers is not just products to sell but the consumer insights and marketing expertise that will help them shape the category’s pricing, range, promotional strategy and so on to the specific needs of their target customers.
This moves the relationship beyond negotiations over price to collaboration in joint marketing programmes. As Procter & Gamble’s UK general manager Paul Polman explains: “When we talk to a retailer, we are not just taking a brand to talk about a brand, we are using all parts of our company across all aspects of our business to make the most effective deals from the consumer standpoint.” It is no accident, therefore, that a quid pro quo of Tesco’s copycatting move is that brand manufacturers should collaborate in redesigning its own-label range.
Second, brand manufacturers will come under increasing pressure (as they already are) to offer retailers bespoke packages in terms of store-specific promotions, micro-marketing, PR initiatives, pack sizes and so on. But it won’t stop there. The pressure will extend into requests for exclusive lines, formulations and even “control” brands – brands that are produced and marketed by brand manufacturers under their own names and identities but which exist solely as extensions of retailer marketing strategies. Again, it is no accident that a condition of Tesco sharing its data is its request that manufacturers set up teams dedicated to developing products specifically for Tesco customers. After all, own-label suppliers have been doing it for years.
Third, Tesco has created a brand manufacturer beauty contest. It is effectively asking each supplier to display its prowess in helping Tesco do its business (at the expense of Sainsbury’s, Asda, and so on). And it will choose those with the best as partners.
By doing so it has started a race. It has moved first, fast and radically to snap up the best of the crop for itself, tapping its best suppliers’ resources and expertise to gain a march on its competitors in terms of price and innovation. Its rivals have little choice but to follow, thus triggering a frantic scramble for ECR-inspired category management partnerships – laggards risk being left out in the cold.
Finally, brand manufacturers will soon face a mind-boggling explosion of complexity as they try to handle a growing number of ever more complicated relationships with ever more demanding partners, each pushing them in different directions. They will have to do this in such a way that their partnership with retailer A doesn’t inspire the wrath of retailer B, all the while maintaining their brand’s overall marketing coherence and budgets – or else facing an own-label or “control branded” future.
No doubt soon, as the new Labour Government faces the realities of power, some people will start remembering “the good old days” of Conservative rule. Ditto for brand managers. They could soon be remembering the bad old days of copycatting as the easiest time of their life.