The store shelves are packed with ‘Daisy’ dish wash bars and ‘All About Men’ shaving products – all private labels of Tesco. The store issues Clubcard loyalty card, a popular loyalty scheme of the UK-based retailer. The colour combination, signage, space between aisles, the layout — almost everything looks the same as that of a Tesco store.
But make no mistake. The store is not located in a leafy British suburb. Actually, it’s right in the heart of Pune and belongs to Star Bazaar, the hypermarket chain owned by Tata-owned Trent. Four years after signing a franchise agreement with Trent to provide retail expertise and technical capability for the latter’s hypermarkets, Tesco, the world’s third largest retailer, is increasing its footprint within Star Bazaar.
“It is a marriage of the retailing experience of Trent and the backend knowhow of Tesco,” says an executive working for the Tesco-Trent combine.
So what else is Tesco offering to Star Bazaar, which started its first hypermarket in Ahmedabad eight years ago and now runs 15 stores in the country? After Tesco came in, product categories at the Tata retail chain have at least quadrupled. Even the live kitchen at the store, which rolls out spicy tandoori chicken or vegetable burger, is essentially a Tesco brainchild, says the executive.
In Star Bazaar, which draws three to four per cent of its revenues from private brands, Tesco helps in terms of sourcing and developing its own private brands in many categories such as noodles and ketchups. Tesco’s Hong Kong office, which sources thousands of products from all over Asia to supply to Tesco’s stores worldwide, comes into play here. The 300 staff-strong Tesco Hindustan Wholesale, the wholesaling arm of Tesco in India, taps the Hong Kong office for the needs of Star Bazaar stores.
This has helped Star to keep prices competitive. For instance, most of Tesco’s private brands in the health and beauty category are priced between Rs 59 and Rs 349. And Tesco’s towels are priced at Rs 99. Tesco has over 200 stock-keeping products (SKUs) in its private brands in Star Bazaar stores and plans to double that number in the next couple of years. Private labels help retailers earn higher margins as they save on overheads.
It’s not that Tesco private labels operate only in the cheaper segments. “Tesco actually has products at various price points, including premium, requiring a lot of innovation and customer understanding,” says Naimish Dave, director at OC&C Strategy Consultants, a global consulting firm. That experience will come in handy for Star Bazaar as its private labels business moves to the next stage. No wonder, Tesco earns more than half its revenues in the UK from its private brands.
Research and analytics
Tesco, which is renowned for its data research and analytics, is also helping Star Bazaar with customer research inputs. “We are using the best Tesco methods which are disproportionate to the size of our operations in India,” says an executive.
For instance, it is Tesco which told Star Bazaar that the retailer need not stock soaps and shampoos near the entrance of the stores. Reason: Indian customers will seek out those essential items wherever they are kept in the store. Rather, use the vantage position for showcasing products having a novelty element and thus higher margins.
Tesco also provides its proprietary “planogram” software to Star which helps the latter in better display of products. For instance, it helps the retailer to stock cola products in diagonal direction as per the ‘good-better-best’ sale of cola products. “There is a constant flow of Tesco IPR to Trent. All of Tesco’s cutting edge technology is available to Trent,” he says. Tesco Hindustan Service Centre, its innovation hub in Bangalore, is helping Tesco with all IT programming.
Supplies
More importantly, Tesco is playing a big role in the supply chain of Star Bazaar stores. It manages three distribution centres, which manage high availability and constantly churn out supplies to the Star Bazaar stores.
Here, armed with its advanced demand forecast systems, auto ordering mechanisms and advanced warehouse systems, Tesco gets over 80 per cent fill rate to the stores of Star Bazaar. Normally, Indian retailers get fill rates of 60 to 65 per cent as against 90-95 per cent in Europe and the US. Fill rate means the rate at which goods are supplied to retailers against the orders placed.
Though large FMCG companies still maintain the old distribution set-up of manufacturer-wholesaler-distributor-retailer network even in case of modern trade, Tesco is among the few who get direct supplies from FMCG companies.
