BRANDS & RETAILERS COLLABORATE - TESCO/PROCTER GAMBLE

Brands and retailers take a collaborative approach

Marketing Week June 24th 2010

A groundbreaking deal between Tesco and Pringles owner Procter & Gamble reflects the shifting balance between FMCG suppliers and the retail trade that promises to benefit both parties.

Power struggles between retailers and their FMCG suppliers

are well documented but now these relationships are being taken in a new direction, with both sides collaborating. Procter & Gamble has created a "Great British Flavours" line of Pringles exclusively for Tesco, which is thought to be the first time an FMCG brand has created a unique range for the supermarket.

While P&G will not confirm how far this collaboration will extend, it is already in discussions with other retailers about partnerships. Traditional product launches still abound, with

Dunkin Brands recently launching a full range of Baskin Robbins ice cream exclusively in Morrisons stores for six months. And tie-ups are common in the fashion world, where high street retailers H&M, Debenhams and New Look run limited-edition lines from designers Jimmy Choo, Matthew Williamson and Giles Deacon.

But the mixture of P&G and Tesco is unusual in that the brand manufacturer has worked with the retailer to provide an exclusive line. P&G snack sales have suffered recently, with global snack figures down 2% in the three months to the end of April, which may have helped persuade the FMCG giant to work with Tesco.

The partnership ought to be a success because of the strength of both brands, says Mike Ashton, managing director of Ashton Brand Consulting, who started his career at P&G. "Pringles is a very strong brand and P&G is a very smart company." The bold move is not simply a case of surviving, it's creating a much closer relationship, he says. "You would question why it would necessarily want to take a premium end brand that is in no danger of being delisted, and develop it.

"This is a positive-aggressive move, which is the equivalent to 'new and improved'. It's probably a very smart way of setting a precedent on relationship development," he says.

This shows the wider trend in the relationship between retailers and suppliers, he says. Historically brands put marketing spend behind products and supermarkets put them on their shelves, but the rapport between brands and the shops they are sold in is now more complex.

"It reflects the maturity of the relationship and the shifting balance between FMCG suppliers and the retail trade," says Ashton. Suppliers realised some years ago that retailers have a growing sophistication and power and they don't have to take the big brands if they choose not to." New York trends research firm PSFK calls these partnerships "complementary creation", where brands mix together to help the customer

make a choice through association. US fashion retailer J Crew has done this by launching its first standalone men-only outlet in New York, featuring its own brands as well as specially

commissioned pieces from other brands. PSFK consultant Francisco Hui says it is a

formula that works.

Viewpoint on the Pringles and Tesco initiative

essential

Darran Snatchfold, group planning and intelligence director at integrated

Waitrose~ agency Tullo Marshall Warren

original blend

round tea bags

Waitrose: Essential range accounts for 16% of total sales

coming together to create new experiences for people is a win-win situation," he says. But he warns that these collaborations need a great deal of thought in order to benefit both parties.

"The challenge IS to figure how not to cannibalise your own products. You need to consider the untapped niches that no one has catered for," he says. "This may work if the collaborationcan create value beyond price, which is why own-brand goods tend to be chosen."

For Waitrose, this means taking control of a brand itself to mould it in a way to appeal to its own customers. It went into partnership with organic producer Duchy Originals last summer with the retailer manufacturing, selling and distributing Duchy Originals products, which will extend to more than 300 lines by the end of this year.

This follows a more aggressive trend in the supermarket's marketing, which started two years ago when it doubled its advertising spend to £50m and opened a number of overseas stores. Waitrose sales increased 11.7% from January to April this year, compared to the same period in 2009, and earlier this month put marketing director Rupert Thomas on its board.

It has also formed a partnership with Boots that will see Waitrose-branded convenience food being sold in the chemist's outlets, and Boots own-brand cosmetics and toiletries being stocked in some Waitrose outlets.

Dean Brown, head of growth for B2B at Waitrose.

This may be a new departure for Tesco and Pringles alike, but the reasoning behind it will come down to age-old issues for both brands. For Tesco, it will be a straightforward move to add value for its customer base and drive footfall. For Pringles, it's about creating noise and generating preferential store support to get its product in the hands of the consumer. And with the domination of Tesco in the market, that's a lot of hands.

It's unlikely to have an impact on a retailer's own low-cost value ranges, but this adds an extra way for both retailer and brand to compete at the mid-range price point. Presumably, given Tesco's strengths in customer data and accountability, it will have thought through potential cannibalisation and decided that the opportunities were worth the risk.

It's difficult to say whether this will be part of a wider trend for retailer and brand partnerships -although given the increasing domination of the big retailers, brands will always be looking at ways to increase their on-shelf presence and in-store promotion.

What's interesting in this case is that this is the first in a number of exclusive collaborations between Tesco and Procter & Gamble. P&G has to be mindful of how other big retailers will view this new activity. Given the stature and dominance of P&G's brands in the sectors in which it operates, delisting is not an option, but it may well see their competitors' brands given greater in-and out of-store marketing support.

I'm not convinced that Pringles is enough of a hero brand to make this activity worthwhile for Tesco. Are people really going to swap their shopping habits on the back of it? However, if P&G's other brands are likely to create exclusive ranges, this does start to sound like an interesting move to watch.

This is a positive-aggressive move, which is the equivalent to 'new and improved'. It's probably a very smart way of setting a precedent on relationship development

Mike Ashton, Ashton Brand Consulting

Boots help to reach a much wider customer base. "When partnering with brands, we look to work with those that will help us enhance the offer we provide to our customers or make our products more easily accessible.

"This allows us to make our products available to a larger number of customers and make further strides into the convenience retail sector via new formats and channels," he says. These channels include Shell, Boots and Welcome Break, which runs ten franchise Waitrose stores in the UK, with two more to open this summer.

While the supermarket is pushing its own-label as a standalone brand, back in store the retailer's Essential Waitrose range accounts for 16% of total sales and has helped the supermarket's growth, says Brown. "Our own brands are still a hugely important part of our offer and we're finding that more and more people are buying them," he says.

Own-label goods are becoming ever more important for supermarkets. A study by Ipsos in March showed that 80% of global consumers said own-label goods were the same or better than branded goods.

Asda will start revamping its 5,500 own-label products this October. The supermarket's former chief merchandising officer, Darren Blackhurst, says that innovation is key to the success of own-brand products, which account for about

half of overall food sales. "Our goal is to ensure that we offer everything that customers want for their weekly shop -backed

up by a continuous flow of new product innovation

that ensures we stay ahead oftheir needs," he says, thus competing on-shelf with brands that pride themselves on research and development.

For Ashton, the danger for brands is they may be overtaken by own-label products. "The interesting one will be if the day comes when a Tesco Finest brand of shampoo is sitting alongside Pantene, for example, and the customer chooses Finest," he says.

In the US, Wal-Mart's own-brand Equate is the label on a range of health, medical and beauty products, from pregnancy tests to shampoo. Some of its range is on a par with branded goods in terms of price, but many products undercut rival products from brands. For example, Equate anti-wrinkle face and neck cream is priced on Wal-Mart's website at $7.87 (£5.32). Its packaging invites consumers to "compare to L'Oreal Dermo-expertise Advanced Revitalift face and neck day cream anti-wrinkle and firming moisturizer", which costs $13.54 (£9.14).

Perhaps it is competition such as this that is encouraging partnerships between brands and retailers. "The lines between what the retailer does and what the manufacturer does are now blurred," says Ashton. "It's a more creative and commercially expedient approach rather than a traditional buyer-seller relationship. From a business and brand point of view, it is fascirlating how far integration can go commercially."

For the suppliers of branded goods, retail

partnerships appear to be a way to integrate

commercially to benefit both parties.