Has Tesco stretched its neck out too far with Giraffe?
When Jack Cohen found himself with a shipment of tea from Thomas Edward Stockwell in 1924 he needed a new brand name to sell the merchandise. So he took the three initials of the tea brand and the first two letters of his surname to create Tesco and the approach to branding that his supermarket would take for the next 80 years. Everything created by the company would be sold using the Tesco brand. It was the quintessential branded house.
In 1993, for example, when Tesco was troubled by the first Aldi stores in the UK, it launched a low-priced private label range called Tesco Value. The name might seem obvious now - but Tesco could have followed Marks & Spencer and used an endorsement approach (St. Michael), Sainsbury’s with a sub-brand (Taste the Difference) or even copied Aldi’s house of brands approach and used pseudo-brands such as Diplomat or Romano.
Tesco’s singular approach to brand architecture was not just reserved for its private labels. As Tesco diversified it continued under the single-branded house model. In 1997, the retailer set up its own bank in partnership with RBS and named it Tesco Personal Finance and then later, simply Tesco Bank. When the internet arrived, Tesco responded with the first major online retail site - Tesco Direct in 1997. In 2003, the supermarket ambitiously launched its mobile phone operation in partnership with O2 - again in the same vein, it was branded Tesco Mobile.
The same approach was used even when a brand was acquired. In 2008 when Tesco bought a small IT support company called The PC Guys, the company was quickly rebranded as Tesco Tech Support and rolled out across many of the supermarket’s largest stores.
Whether it was a line extension, brand extension or acquisition - Tesco kept everything simple and within the same branded house. But for the past seven years, things have been changing at Tesco. First, we had the decision to open Fresh & Easy in the US in 2007. A year later, Tesco launched its Discount Brands range in an attempt to combat Aldi’s increasing success in the UK. For the first time, Tesco no longer offered its private label products using its masterbrand but under pseudo-brands instead, such as Packers Best and Trattoria Verdi.
And these were not the only new brands. Tesco launched Technika - its in-house electrical goods line. The F&F clothing line was expanded and then taken international across its stores in Europe and Asia. Its Chokablok ice cream brand was launched in store in 2011 and distributed to non-Tesco retail locations.
There has also been a spate of acquisitions. In 2007, the retailer bought Scottish garden centre Dobbies. In 2010, Tesco finally took total control of CRM master Dunnhumby. In 2011, it bought a controlling stake in video streaming brand Blinkbox. Last year, it was music streaming service WE7 and artisan coffee chain Harris + Hoole. Earlier this month, we learned of Tesco’s acquisition of family restaurant chain Giraffe and more acquisitions are said to be on the way.
Under new chief executive Philip Clarke, this diversification is now enshrined as part of Tesco’s future. Thanks to brand creation and acquisition the company has massively increased the number of brands in its portfolio - and dramatically changed its brand architecture. Where once Tesco was a branded house, today it is at the other end of the spectrum as a house of brands.
The addition of so many new brands might help Tesco in the short term to boost sales now that competition in the grocery sector is so stiff. But it also prompts the question as to whether Tesco can successfully shift so quickly from a single brand to a multi-brand operator and whether the retailer really has the core competence to build so many brands. Selling them is one thing, creating and building them quite another.
According to Philip Clarke, the company has always had the capability. “We like backing great brands, helping them to grow and to realise their potential,” he recently told The Guardian. “We’ve done it with suppliers for years.” Gulp. I am sure his newly acquired brands will be hoping for better treatment than the kind Tesco has been doling out to its suppliers over the years.
So far, Tesco has had an amazing record of success when it operates under its own brand. When it strays into new brand territory, however, the results are far less impressive. Fresh & Easy is unlikely to survive. Its Discount Brands hardly held back Aldi or Lidl in the UK. And, despite all the talk of brand creation, the likes of Chokablok required enormous levels of sales promotion to survive.
But the biggest issue is brand focus. The more Tesco diversifies into new territories and launches new brands, the more diluted and distracted its management could become. The joys of the branded house approach it exemplified for so long are those of focus: one culture, one brand, one team, one strategy and one hell of a model to now walk away from.