Exclusivity could be the key to consumers’ hearts and minds as supermarkets and high street retailers battle for market share in the health and beauty sector.
It is common knowledge in the trade that Tesco has been talking to manufacturers about setting up exclusive distribution deals in order to differentiate itself from other supermarkets and to take on high street rival Boots. The latter has a strategy of selling brands that are unique to its stores alongside own label products.
Last week Tesco announced its first exclusive distribution deal, the launch of Procter & Gamble’s premium haircare brand Physique in the UK. Tesco has exclusive rights to sell the brand for the following nine months (MW last week).
Tesco is trying to persuade consumers that its range of competitively priced products is sufficient to negate the need for a separate journey to the high street.
“We will offer our customers a comprehensive choice of major brands as well as introducing exclusive ranges in partnership with brand owners, and we will develop our own ‘superbrands’,” says Tesco health and beauty manager David Cooke.
This is a similar strategy to Boots’. The chemist has a long tradition of selling toiletry and cosmetics brands on an exclusive basis. Charles Worthington, which according to Taylor Nelson Sofres is the chain’s third best-selling haircare brand, is a good example.
For the past two years Boots has also been working with hairdressers and make-up artists to develop, manufacture and sell brands on an exclusive basis. Resulting ranges include Toni and Guy, Ruby & Millie and Liz Collinge.
Boots chief executive Steve Russell says: “The haircare market is becoming commoditised and has been in decline, largely as a result of supermarket pricing activities.”
However, he also reports that in the year ending March 2001, Boots’ sales of designer haircare products rose by 28 per cent, accounting for 28 per cent of total haircare sales. Growth has also been reported in premium skincare sales.
While Tesco is obviously keen to capitalise on the growth and higher margins of the premium sector, it also appears to have half an eye on a trial being conducted by arch-rival Sainsbury’s which, in six of its large out-of-town stores, has replaced the health and beauty section with a Boots “store within a store”.
Verdict retail analyst Sally Bain says: “It’s a good deal for Boots, as it gets the chain into out-of-town locations, but I’m not sure what Sainsbury’s is getting out of it.”
Although Tesco is set on spicing up its health and beauty range with exclusive deals, it is not so clear why P&G – which generally offers products to a wide range of retailers – would agree to launch a new haircare range on this basis.
As a buyer at one retailer says: “P&G always operates on the principle of making everything available to everyone.”
Perhaps that had been P&G’s intention, until it postponed plans to launch Physique in the UK in 2000. A spokeswoman for the company explains the reason for the postponement: “We had not found a UK and Ireland launch plan that met our pricing and sizing strategy, our internal financial criteria and the level of investment needed to support the brand.” She adds that the partnership with Tesco “means this is no longer an issue”.
But one analyst – David Hallam of Williams de Broe – says: “I suspect this is a cheap way of trying the product out on the market.”
The Physique range, which was launched in the US two years ago, is designed to compete with salon brands, and is sold as a technologically advanced product. The range includes shampoo, conditioner and gels and will be sold in 300 Tesco stores from February, with each product priced at &£3.49.
Tesco plans to support Physique with point-of-purchase marketing, in-store demonstrations, sampling by 300,000 online grocery shoppers, coverage in Tesco’s customer magazine, mailings to Tesco Clubcard customers, e-mails to Tesco.net ISP users and posters outside stores.
P&G admits that a number of retailers were approached about the launch, among them Boots. Boots category general manager for personal care Ian Abbott says: “We came to the decision that it was not the right brand for us to stock.”
Soon after Physique launched in the US, reports emerged that some US retailers were not happy with the product and had had to offload unsold stock cheaply. There has also been speculation that P&G will actually axe Physique, as well as its VS Sassoon brand, as part of a brand cull in the wake of the Clairol acquisition.
But a P&G spokeswoman claims that no retailers have delisted the brand in the US, and that Physique was the “second most successful haircare launch ever” with retail sales of over $100m (&£71m).
She adds that “several” retailers made an offer to launch Physique in the UK on an exclusive basis, and Tesco’s offer was “the best fit from both financial and consumer points of view”.
Tesco’s emphasis on online marketing fits with the strategy that was eventually adopted for Physique in the US. A launch plan, dominated by TV advertising, was reportedly modified to incorporate a Web-based campaign. Some reports estimate that in the end only 15 per cent of the launch budget was spent on TV, with the rest going on outdoor, print, ambient media, in-store marketing and the online campaign.
This launch also fits in with P&G’s changing media strategy. While TV remains the dominant form of advertising, greater emphasis is being placed on cheaper, more targeted media.
Furthermore, premium health and beauty products are rarely supported by large above-the-line campaigns, in contrast to their mass-market counterparts. Instead they use PR, in the hope of suggesting some kind of impartial editorial endorsement.
Tesco is keen to secure further exclusive distribution deals in its bid to dominate the health and beauty market. Although it claims to be the volume leader of toiletries retailing – ahead of Boots – with an 18.7 per cent share last year, Tesco has yet to claim market dominance on value.
According to Verdict, Boots leads in the health and beauty market (toiletries, cosmetics, over the counter and prescription medicines) by value, with a 26.1 per cent share for 2000/2001. Tesco has 13.5 per cent, while Sainsbury’s has 7.5 per cent and Asda 6.8 per cent.
Bain claims that Asda and Tesco are leading an assault by the grocery sector on the health and beauty market. Grocers now have 43.6 per cent of the sector while specialists, including Boots, have 43.7 per cent. Verdict predicts that by 2006 grocers will have 60.7 per cent and the specialists will be left with just 32.7 per cent.
Tesco no doubt hopes that its strategy of carrying more products on an exclusive basis will be a major tool in its drive for market dominance.