Tesco, the UK’s largest supermarket, has thrown down the gauntlet to upmarket rivals Waitrose and Marks and Spencer, signalling it is targeting an extra £1bn in sales for its upmarket range Finest.
“We haven’t yet set our stall out to say ‘what would it take to get to £3bn’ but we’re very conscious it is playing an increasingly important role,” chief executive Ken Murphy told the Financial Times. Finest has annual sales of £2bn and includes products such as apple and cider sausages selling for £4 and bottles of Argentinian Malbec for £8.50.
“We genuinely believe . . . that our intrinsic [food] qualities are every bit as good as anything you would get at Sainsbury’s and increasingly out of Waitrose,” added Murphy, whose chain commands 27.7 per cent of the UK grocery food market. “M&S we probably still have a bit of work to do.”
His remarks come as shoppers shun restaurants in the face of higher living costs having also become more adventurous with their cooking at home after experimenting during the coronavirus pandemic.
Spending on premium labels owned by supermarkets was up 12 per cent in the year to June 9 compared with the previous year, according to data group Kantar, even as food bills come down after a period of surging inflation. It was also nearly double the 6.9 per cent growth in growth in all brands owned by the grocers, including their budget ranges.
Tesco’s Finest products account for only just over 3 per cent of the group’s £61.4bn sales — but this would be equivalent to about a quarter of Waitrose’s total sales and M&S’s food sales, respectively.
However, it has taken Tesco about a decade to reach that level, from £1.4bn in sales in 2013. There is no target date set for potentially getting sales to £3bn.
Clive Black, a retail analyst at Shore Capital, said it would not be earlier than “the medium and long term before that number is reached” as the UK grocery industry’s annual growth is relatively modest.
The Finest range, which first launched in 1998 and is known for its silver branding, is being sold in more of its 3,000-odd shops and the chain has been expanding it to include its dine-in-for-two offer — a mainstay for premium rival M&S — that sells coq au vin for £7.50 and a green vegetable medley with wild garlic butter for £3.
Premium ranges have become a battleground in the cut-throat competition between supermarkets. Rivals such as Waitrose last month relaunched its premium own label No. 1 and Asda introduced its “Exceptional” range in May. Waitrose said No.1 “sets a new benchmark for quality”.
Sainsbury’s has also been adding to its premium offering, while M&S’s food division — which touts the welfare credentials of its products — has recently posted soaring annual sales. Even disrupters such as German discounter chain Lidl have benefited from this trend with its Delux range.
Murphy rejected suggestions that supermarkets could just repackage standard products with a premium label to sell to customers.
He said when Tesco was concocting new products at its food development centre, part of the group’s headquarters in Welwyn Garden City, it wanted “at a minimum to match or beat M&S or Waitrose”. “If we can’t satisfy ourselves that we’re at least as good at them, ideally, better than them, the product doesn’t make it.”
For example, although the Finest range already includes sourdough bread, the supermarket has been tinkering with its recipes to improve the product. Across the industry it has been commonplace to use dehydrated starter but it will now also use its own live culture that goes into the base of the bread.
“This is restaurant-quality now,” said Jamie Robinson, Tesco’s executive chef, who used to work for Michelin-starred chef and restaurateur Marco Pierre White.
There has been “a massive step change in our product culture, from an innovation point of view” said Murphy after Tesco hired Breige Donaghy, its director of product development and innovation, and Dominic Morrey, its commercial director of fresh food, in 2022 with a mandate to boost Finest.
Tesco’s sales of upmarket food have been buoyed by more people entertaining at home and dining in on a Friday and Saturday as they watch their spending.
“While it is a trade up from a core, own-brand product, it is a massive saving versus eating out because eating out has become way more expensive relative to food,” said Murphy.
The pandemic also ignited an interest in cooking, forcing supermarkets to up their game when it comes to ingredients and the cuisines on offer.
It takes Tesco on average about 40 weeks for a product to be launched but it can fast track certain items, Donaghy said. She has a team of 60 developers who focus on shoppers’ “needs and wants”, who pay close attention to food trends and work closely with its technical and commercial teams as well as suppliers such as Cranswick and Bakkavor to manufacture the products.
Tesco has been working with some of its suppliers for decades and there was “an element of trust and an understanding of each other’s working processes and there’s also a lack of fear . . . they can rely on the longevity of the relationship to invest in better processing, better ingredients, better cooking techniques”, Murphy said.
There has to be a balance, however, between “the razzmatazz of new products and excitement” and the quality of fresh food such as vegetables, meat, fish and poultry, he added. “If you don’t get the basics right, nobody’s going to believe that you’re making a product like this.”
