Tesco has revealed plans to slash its number of suppliers and replace their products with its own brands and "power brands" produced by its key strategic partners in its central European stores, and experts are predicting it could provide a model for major changes in the UK as well.
The supermarket has told investors it will cut the proportion of shelf space taken up by smaller brands by more than half, as it consolidates its supply chain in a bid to drive lower prices and boost margins.
In a presentation last week, Matt Simister, commercial director for group food sourcing, said it would be "consolidating less meaningful brands to create space for our own brands and power brands."
The move looks set to have major implications for suppliers, with experts predicting opportunities for more strategic deals with big suppliers such as P&G and Unilever.
But the knock-on impact could be serious for suppliers such as Premier Foods, which are seen as being in a much weaker negotiating position.
Speaking to investors and analysts in central Europe, Simister said Tesco planned for tertiary brands to contract from 40% of shelf space at present, to 15%. At the same time it planned to ramp up the volumes of so-called power brands, including its own "venture brands", such as recently launched ice cream range Chokablock, and Yoo yoghurts, from 30% to 40%.
The announcement follows the call by Tesco CEO Philip Clarke for the company to put creating brands at the heart of its strategy. But Clive Black, an analyst at Shore Capital, said he was surprised at the scale of Tesco's thinking. "We see this as having profound group-wide implications for Tesco," he said. "We would be especially concerned for Premier Foods and its legacy brands."
One large Tesco supplier said: "There is a possibility of local suppliers being squeezed out but Tesco has been at pains to explain that they will also use their expertise to help support smaller operations, especially on logistics."
Editor's Comment: Tesco has run rings round Premier’s flabby conglomerate strategy (2 July 2011)
Delistings by Tesco push Premier into profit alert (1 July 2011)