In one of retail’s worst-kept secrets, Tesco has unveiled its first ‘Jack’s’ discount supermarkets, as it bids to compete with the recent success of Aldi and Lidl. But will Tesco just find that they are competing with themselves? Supermarkets do not have a great track record when it comes to running discount brands alongside their main brand…
By Mark Richards.
Earlier this week Jack’s threw open its doors in Chatteris, near Cambridge, and Immingham in Lincolnshire. Tesco boss Dave Lewis is promising 10-15 more branches over the next six months. At least five of those new branches will be existing Tesco stores which will be converted to the Jack’s brand.
Welcome to Jack’s
The new, low-cost supermarket chain will be called Jack’s and is named after Sir Jack Cohen, who founded Tesco in Hackney 99 years ago. The motto then was “pile it high and sell it cheap” and that is exactly what Jack’s will be aiming to do, concentrating on a restricted range of products, 80% of which will be grown, reared or made in the UK.
Tesco Chief Executive Dave Lewis says that Jack’s will be the “cheapest in town” and will appeal to the
“economically challenged that need a bargain and the affluent shopper that wants a bargain.”
Necessarily the range of products will be limited – around 2,600 products, which is similar to Aldi or Lidl and around 10% of the range of the typical large Tesco supermarket.
For those of you that have not spent your life in marketing meetings, it stands for Unique Selling Point and for Jack’s it appears to be the focus on British goods, compared to the lesser known European brands sold by Aldi and Lidl. There will also be a nod to nostalgia with pictures of Jack Cohen on the walls and potatoes once again sold out of hessian sacks. Clearly, we await Jack’s advertising with interest…
The rise and rise of Aldi and Lidl
Around 12 months ago the Guardian reported that £1 in every £8 spent in UK supermarkets was spent at Aldi and Lidl, with two-thirds of UK shoppers having visited the stores in the previous three months. Since then the position has only improved for the discounters – so why have these German supermarkets done so well? In an article in May, Management Today made the point that Aldi and Lidl recognised – well before the big supermarket brands – that what shoppers wanted was not a wide range of products but convenience: they wanted the basics to feed their families for as little as possible.
The march of Aldi and Lidl really started about four years ago and continues today. In the 12 weeks to 22nd April this year, Aldi commanded 7.3% of every pound spent, and Lidl accounted for 5.4% – meaning that last year’s £1 in every £8 is now £1 in every £7.87.
Aldi has overtaken the Co-Op to become the UK’s fifth biggest supermarket by market share, while Lidl has overtaken Waitrose to move into 7th place.
All of this makes Tesco’s decision to meet them head-on understandable: Aldi and Lidl are eating remorselessly into Tesco’s market share.
Will Jack’s be significantly cheaper?
The answer to that is ‘yes.’ And ‘no.’ Yes, it will be significantly cheaper than the ‘big’ supermarkets: no, it may not be significantly cheaper (if at all) than Aldi and Lidl. Early price comparisons seem to indicate a good saving over a comparable branch of Tesco – Jack’s own label baked beans, for example, are 29p compared to around 75p for Heinz baked beans in Tesco. Although that does not answer the thorny question of what Jack’s beans will taste like…
Staff won’t have to wear a uniform in Jack’s – so if you want some help it is going to be pot luck whether you ask a member of staff or another shopper. And Tesco Clubcard holders can leave the Clubcard at home when they shop at Jack’s – they will not be able to earn any points.
Jack’s also brings the excitement of the WIGIG aisle – When it’s Gone it’s Gone – which is an idea copied directly from Aldi and Lidl. And you thought life could not get any more exciting than BOGOF…
Is price the only basis for competition?
For now, it certainly seems to be the only game in town. It used to be said that people did not mind paying a little extra for their food at Marks and Spencer’s because the quality was superior. I doubt that many people would say that now and – as has been widely reported – M&S are planning a further programme of branch closures. It is also a rare day when you cannot ‘dine in for two for twelve quid’ – although whether its popularity will survive the recent price hike is another matter.
The Sainsbury’s/Asda merger
Earlier this week it was announced that the Competition and Markets Authority (CMA) has referred the proposed merger between Sainsbury’s and Asda for a ‘further in-depth investigation.’
Despite the warm words of Sainsbury’s and Asda when the merger was proposed – ‘this will be good for shoppers and jobs: it will not affect competition’ – it is impossible to see how it will be good for anyone but the shareholders. As the CMA has pointed out, there are overlapping stores in hundreds of areas and reducing the number of major supermarket brands from four to three simply cannot be good for competition.
It might, however, be good news for Jack’s if the merger went ahead: in fact Tesco might well be betting on the UK supermarket war not being fought between themselves, Asda, Sainsbury’s and Morrison’s, but between the mainstream supermarkets and the discounters – with the discounters’ share of the market steadily increasing and Tesco having a foot in both camps.
Whether this is necessarily good news for shoppers is another matter. There will not be competition between the two camps, and less competition cannot possibly lead to lower prices or better products.
So will Jack’s be a success?
‘Past performance is not necessarily a good to the future’ as the insurance salesmen like to remind us. But if past performance is any guide, Jack’s may struggle. Sainsbury’s tried a similar experiment with the Netto brand, only to abandon it in 2016 and Tesco themselves failed with the Victor Value discount brand in the 1980s. It is all too easy to see people saying, ‘This is the same product, why can’t it be cheaper in the main Tesco store?’ or words to that effect. The big danger for Tesco is that they simply end up competing with themselves and alienate the shoppers at the main stores.