TSCDY Tesco PLC (PK)

By Saabira Chaudhuri 

LONDON--The U.K.'s grocery chains are battling it out down on the farm.

Seeking a leg up in a hotly competitive market, traditional chains are highlighting the farms that supply them--or making up farms just for branding--as they take on aggressive discounters such as Germany's Lidl and Aldi.

Tesco PLC, Britain's largest retailer, earlier this week showed off some its 76 new food lines, branded with names like Woodside Farms, Willow Farms and Redmere Farms. Most are directly comparable to those found at discounters.

Analysts and reporters attending Tesco's full-year results briefing at the London Stock Exchange filed past displays filled with chickens, plums, tomatoes and packages of beef. Tesco created the products with suppliers to hit certain price and quality metrics, and says they are about 20% cheaper than discounters' similar offerings.

But Tesco's new product ranges have stirred up some controversy in the U.K. for bearing the names of seven made-up farms. Critics say the British-sounding monikers obscure the fact that the products come from a variety of farms, including ones overseas.

Blueberries under the Rosedene Farms brand come from Spain, for example, while apples under the same brand hail from South Africa.

Chief Executive Dave Lewis, a former Unilever PLC marketing executive, explained the names as a branding exercise. He said Tesco decided to launch them after analyzing why customers were taking some of their shopping elsewhere.

"I'm not shy about the fact that all good marketing will always polarize, " Mr. Lewis said Wednesday. "We've been very open about the fact that this is creation--we're creating and launching these brands."

He said Tesco's investment in the new farm brands was "probably the most significant" he has made so far. He warned that further investments likely would cap profitability in the near future.

"Using 'farm' creates an image of freshness and provenance," said HSBC analyst David McCarthy. "The objective of this fresh-food range is to remove a reason customers might go to a discounter."

Indeed, Tesco's move is directly aimed at Lidl and Aldi, which have been steadily stealing market share from their larger rivals for years--and have an array of made-up farm brand names of their own. Aldi sells meat and fresh produce in the U.K. under a brand called Ashfield Farm, similar to its U.S. brands Friendly Farms and Appleton Farms. Lidl's brands include Birchwood Farm and Strathvale Farm.

The British efforts are part of a global trend among supermarket chains and food makers as customers increasingly seek food that appears fresh, lacks artificial ingredients and is locally sourced.

In the U.S., the websites of companies such as Kellogg Co. and General Mills Inc. tout the names and profiles of farmers who grow wheat and oats for their cereals. Wal-Mart Stores Inc.'s Sam's Club unit recently began putting codes on produce packages that shoppers can scan using smartphones to learn more about the food's provenance.

Aldi and Lidl now have a combined market share of 10.4% in Great Britain, up from 8% two years ago. Over that period, the "big four" supermarkets--Tesco, Wal-Mart's ASDA, J Sainsbury PLC and Wm. Morrison Supermarkets PLC--along with Waitrose, have seen their combined market share drop to 76.3% from 78.6%.

In February, Aldi launched a nationwide advertising campaign to tell shoppers it is the lowest-priced supermarket in the U.K. despite recent price cuts by Morrisons.

"We think it is important to make it clear to shoppers that any challenge to our price-leadership position will not succeed," said Matthew Barnes, Aldi's U.K. CEO.

Not all of British retail's farms are fictional. High-end supermarket chain Waitrose on Friday began streaming live footage in train stations across the country from a farm it owns in Hampshire. Passersby will be greeted with footage of beehives, rapeseed and more from dawn to dusk.

Waitrose also is airing a series of television ads starting on Friday featuring its dairy and egg farms, based on footage shot the same day. It is attaching a camera to the collar of one of its cows to shoot some of the footage.

Waitrose, owned by John Lewis Partnership, said it aimed to let customers see firsthand where their food comes from. "Rather than telling customers what we do, we've decided to show them in an open and honest way," said Rupert Thomas, Waitrose's marketing director.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

April 15, 2016 09:29 ET (13:29 GMT)

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