My understanding of how Tesco (and to be fair other large multiples) work, based on direct knowledge, is if you are paying 1.79 for a bottle of O'Hara's rather than 2.49, O'Haras are making up most, or all of the difference.
So yes, it is price gouging - but it's the supplier, rather than the consumer who is being gouged. On the other hand some suppliers are prepared to put up with it because dealing with Tesco does have its benefits, if you understand how to play by their rules.