Tesco takes on Aldi and Lidl with new Jack's chain
The British supermarket chain has for long been haunted by German low-price warriors, Lidl and Aldi in their home market. Hence CEO Dave Lewis opened the new low-price chain, Jack’s, in Chatteris on Wednesday. Lewis claims it will be the cheapest in town.
Of the 2.600 items on the shelves, 1.800 are Jack’s branded products. Compare that with the 40.000 items sold in its traditional supermarkets and you get a grip on how Tesco, or rather Jack’s, is going to “war” on the “German invaders” that in the last five to ten years have taken 13 percent of the (big!) British grocery market.
According to Tesco they plan to open 10-15 Jack’s stores over the next six months.
Named after Jack Cohen
Jack’s is named after Jack Cohen, who in 1919 founded the business that became Tesco, and is a significant move by CEO Lewis, who has rebuilt Tesco after a 2014 accounting scandal.
However, the limited number of openings and initial capital expenditure of about 25 million pounds ($33 million) disappointed some analysts, as media reports had said that up to 60 existing Tesco outlets could be converted, writes Reuters.
“We only have plans for 10-15 Jack’s, however if we feel that customers are absolutely supportive of what we’re doing then yes of course we have optionality going forward,” says Lewis.
"Fits the Consumer Zeitgeist"
Patrick O’Brian, research director at GlobalData, had expected a bolder store opening schedule.
“Aldi and Lidl are unlikely to be too concerned about this opening salvo,” he utters.
Some Tesco investors were, however, thrilled.
“Jack’s fits perfectly into the current consumer zeitgeist and will drive revenues as well as protecting margins across the Tesco group,” argues Freddie Lait, chief investment officer of Latitude Investment Management.
Made in Britain
In a move highlighted by Tesco to “proudly support Britain’s food producing communities”, eight out of ten food and drink products at Jack’s will be grown, reared or made in Britain. In addition to the Jack’s brand, Jack’s will stock some familiar grocery brands and a range of general merchandise on a “When it’s Gone, It’s Gone” basis.
Tesco has confirmed that Jack’s will operate a low-cost business model that is designed to keep costs low and prices down with a simplified range of products, simplified fixtures and fittings and an emphasis on good quality at low prices.
Jack’s stores will be a mixture of entirely new sites, sites adjacent to existing Tesco stores, and converted Tesco stores.
Britain’s “big four” grocers are trying to adapt to changing habits, including the declining popularity of big weekly shops and the growth of online shopping. They have cut prices and improved service, but analysts say that with sales at Aldi and Lidl growing at ten percent each year it makes sense for Tesco to try to capture some of that growth.
Tesco currently has a 27.4 percent share of Britain’s grocery market. Analysts, however, have concerns that Jack’s could take sales from Tesco’s existing stores - fears played down by Lewis:
“I’d rather cannibalize myself than somebody else cannibalize me.”
Sources: Tesco, Reuters, The Times, IGD.