Analyst James Collins of Stifel has said that Tesco’s recent decision to introduce ‘farm brands’ comes “at a considerable cost and bring substantial uncertainty”.
In a Tesco update, in which Stifle upgraded its recommendation on Tesco to Hold from Sell, Collins said that the move could see “self-imposed deflation” in the short term, “as customers trade down from standard Tesco brand products.”
He noted that the business case for the farm brands initiative “must be built on volume uplifts (fewer reasons for Tesco customers to buy these product cateogries elsewhere). It must also count on a halo effect across the whole shop as shoppers feel less need to seek value through splitting their shopping trips.
“However, it will take time for customers to change their spending habits and hence for gains to offset the additional deflation.”
Tesco’s decision to introduce ‘farm brands’ for its fresh produce has already come under fire from the UK’s National Farmers Union, which called it “something that has the potential to confuse or even mislead customers."
© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.
