What's the difference between a Tesco Extra and a Tesco Metro? Right now, not much, except a few thousand square feet of sales floor and some general merchandise. The prices are the same, the promotions if they run in both formats are the same, and the products and packaging the same, though the range at Metro will be much reduced with some smaller pack sizes.
As the multiples' store formats start to gain critical mass, however, prices, promotions and packaging developed exclusively for brands such as Tesco Express and Sainsbury's Savacentre are set to emerge, according to the latest report from Insight Research. All the multiples have now reorganised their trading teams around formats and this is already changing the way they talk to suppliers, who are having to negotiate with more people to get products on shelf.
Traditionally, accounts might be divided into those covering the convenience sector, and those dealing with the multiples; today, an account manager dealing with Tesco has to come up with a strategy suitable for a 2,000 sq ft Express store and a 90,000 sq ft Extra hypermarket. And while he might be negotiating with the same buyer, he is probably also talking to a raft of other people in Tesco's ranging and merchandising teams as well. At Sainsbury, product assortment planners now determine ranges for different formats and liaise with the buyers, who negotiate for a whole category of products. The chain has also created an extra layer of management to focus on smaller formats in the London area.
"This shouldn't change the nature of the relationship with suppliers," says Sainsbury's project manager for store formats, Paula Coyer, "but it does require them to think differently than one size fits all."
However, some suppliers feel range planners merely add complexity to the buying process if their remit is not clearly defined. "You can go and talk to the marketing manager of the various formats and try to do things with them, but then it all gets referred back to the buyer anyway," complains one sales director. "So you end up in a sort of loop. If they are going to allow us access to the various formats people, either there must be guidelines as to what we can and cannot do or carte blanche to go ahead and agree promotions."
However, most suppliers agree the old days of one account manager talking to one buyer about one type of store are well and truly over. Insight Research partner Dan Munford adds: "If every new product accepted, every ranging decision and every price is being negotiated separately for each format, the whole process of manufacturer/ retailer negotiation will become more complex."
Format-specific products and promotions are on the radar at Tesco and Sainsbury, and although Tesco refuses to discuss its plans in detail, a spokesman says: "Certainly within Express there are some opportunities around having different promotions. You will also see products coming into Express and Metro that you won't see in our superstores."
Burton's Foods says Tesco is already negotiating specific promotions for its different formats, while Yoplait Dairy Crest deputy md, commercial, Jamie Robinson, says there are clear opportunities to introduce dedicated packaging on products bound for Tesco Express or Sainsbury's Local, such as grab and go products with spoons attached. Sainsbury, which has recently developed convenience' packs of nappies, a trial range of Cranks sandwiches and baguettes and some confectionery lines specifically for its c-stores, has so far steered clear of dedicated promotions for specific formats.
However, it may well consider deals exclusive to particular formats in future, says Coyer. In the meantime, she adds: "Suppliers need to consider simplifying ranges while considering appropriate customer driven differentiation across our formats."
Sainsbury confirms "prices vary across different formats", although this is more to do with different operational costs in supplying smaller stores than an attempt to categorise formats by price.
However, it's still very early days for format-specific deals, and suppliers' fingers have already been burned as the multiples explore where the real opportunities lie.
One sales director explains: "A retailer came to us and said, For Christmas I would like you to give me a tailored promotion for each of our formats. So we came up with a programme that would give them something different in every shape of store they had in the run-up to Christmas. We put all of them through and they said, That's too complicated. Maybe next year? At the end of the day it's just too complicated to have a different promotion running in every format."
Questions of viable volume
Similarly, not every supplier is convinced there is much mileage in developing products exclusive to formats at this stage. Says another: "More of the onus is being put on us to develop specific products for individual fascias within retailers. But it's all very well banding a spoon to a pack to make it more relevant at Metro, but are we really going to drive the volume to make it viable?"
Given Tesco's burgeoning convenience estate following the T&S deal and news that Sainsbury is earmarking more than 90 stores as Savacentres, however, the economics of the equation are beginning to change.
What the multiples are still struggling to get to grips with, however, is what the drivers of promotional activity in different formats actually are, argue suppliers.
Is there any point in running the same type of multibuy offer in a c-store as a superstore, but in smaller pack sizes, if the whole point of stocking smaller sizes in the first place is that shoppers don't want to buy the product in bulk? One supplier observes: "It's not that the retailers have said what sort of promotion really suits convenience outlets. They tend to run the smaller pack size promotions that would exist in the bigger stores anyway. So promotions are driven by ranging rather than customer type."
Format-led strategies are still in their infancy, and teething problems have put some people off, says Heinz head of UK trade marketing Peter Robinson. But he adds: "Any notion that one size fits all in today's grocery business is clearly confined to history."