THE HOUSE THAT JACK BUILT

In mid-September 2018 and after two years in development, Tesco opened two new stores under the brand name of “Jack’s”.  Called after the original founder of Tesco, Jack Cohen and precisely one hundred years after he launched the Tesco concept, this new brand hit the high street.

What is the essence of the brand and who is designed to compete against?

Many commentators see it as an attempt to challenge the continued growth of Aldi and Lidl, the two German discounters. They have more than doubled their combined market share of the UK grocery market to 13.1 per cent.

Around 2,600 products will feature in the typical Jack’s store. This compares to around 1,500 or so items in an Aldi and Lidl store.

A key element of this new retail concept is the focus on “Britishness”. Around eight per cent of the products are sourced within the UK. The British flag appears prominently on the packaging. Of the 2,600 items, 1,800 will be branded as Jack’s. The remainder will contain “big name” brands such as Kellogg’s, Coca Cola and Lea and Perkins Worcestershire sauces.

The décor and layout of the Jack’s stores are broadly similar to Aldi and Lidl: wide spaces between the aisles, products which are stacked on pallets and aisles devoted to promotions on big name brands as well as an aisle which features promotions on homeware items called “When it’s gone; it’s gone”. To underline the minimalist nature of the stores, polished cement floor will be employed: in contrast to terracotta tiles which are prominent in traditional Tesco stores. Other initiatives include the concept of “Fresh Five”: a fruit and vegetable offer which changes fortnightly. This is suspiciously similar to Aldi’s “Super Six” promotions. Is this a form of imitation as opposed to innovation?

Workers will not wear a Tesco uniform. They will earn more than their Tesco counterparts on basic pay: £9 as compared to £8.42 and £8.85 at Aldi. Crucially they will not earn the normal staff discount or annual bonus.

Interestingly it adopts a “local pricing” strategy build around the strapline of being “the cheapest in town”. This implies that it will be the lowest on price, compared to Aldi and Lidl in any given town. This is a sharp departure from the strategies employed by Aldi and Lidl. Their respective models are based on the principle of standardisation. Pricing decisions are taken centrally at their Head Offices. The Jack’s model, in the context of pricing, effectively gives autonomy to store and regional managers.

It intends to use three hundred and fifty of its regular Tesco suppliers to stock the stores. This allows it to leverage its existing power and influence and derive some cost savings.

Two stores were opened in mid-September, essentially old Tesco stores that had been “mothballed”. The plan is to have around ten to fifteen stores in operation by early 2019.

This has become a bone of contention among retail analysts. Some argue that it is a very slow roll-out and will fail to make a sufficient footprint to seriously threaten Aldi or Lidl. The essence of this argument is that you are better off making a big bang – with numerous store opening as opposed to “dipping your toe in the water. To be fair Tesco has committed over £20 million on the development of the brand over the past two years.

The counter-argument to their approach is that other supermarket groups have tried similar brand launches and failed. For instance Sainsbury’s opened a number of Netto stores (Danish food retailer) in 2014 but closed them down two years later because they made little impact.

In terms of positioning and identifying a point of differentiation it is focusing heavily on its “Britishness”. This is reflected in items such as Cornish camembert and Derbyshire craft beer. Also all milk-based items are to be sourced from within the UK.

Commentators (some cynics perhaps) see this launch as an opportunistic attempt to leap onto the “Britishness” dimension, roughly six months shy of Brexit. Some argue that the nationalistic (jingoistic) dimensions that are likely to gain in strength as the March 2019 deadline approaches, will allow Jack’s to make a significant impression on the high street. That might be going a bit too far perhaps. Is it a template based around the notion of Jack’s being “a bargain shop for Brexit? It will stock a couple of categories of product that are not demonstrably British: bananas (which are climate dependent), and Italian pasta products.

Some fear that cannibalisation will occur: any sales generated in Jack’s may come from existing Tesco customers simply switching over. Overall net sales increases may be minimal. The CEO of Tesco feels that this is not an issue to be unduly concerned with. He argues that “I’d always rather cannibalise myself than have someone cannibalise me”. This suggests that he expects some cannibalisation but as long as it is only regular Tesco customers shifting to Jack’s rather than Aldi or Lidl customers then everything is all right. This is a contentious perception in my view. What do you think?

Interestingly existing Club Card holders cannot use their privileges in Jack’s stores. This is probably a good move as it explicitly recognises that Jack’s is a separate brand. Again, what do you think?

As Tesco roll out new stores (10-15) over the next few months, a key feature of the strategy is that they will use stores that have been closed in the past couple of years.

The intention is not to set up a web-based channel for Jack’s shoppers. Instead Tesco has developed a payment app which shoppers can use when they make a shopping visit to a store. This is similar to the strategies employed by Aldi and Lidl.

Senior management in Tesco have been quoted as expressing the view that Jack’s is designed to “appeal to the economically challenged that need a bargain and the affluent shopper that seeks a bargain”.

It is too early obviously to make any pronouncements about the likely success or otherwise of this venture. I would make a number of observations however.

The slow roll-out of Jack’s stores either smacks of undue caution on the part of Tesco or an opportunity to “test” out the concept and make adjustments accordingly. If it “fails” over the next year to eighteen months, then Tesco will likely “pull the plug”. However it will not represent a major blow. Relatively speaking the company has not spent much on the launch; with the use of existing stores or ones that have been closed.

If it fails, it will give them “a bloody nose”.

There is an obvious danger that is could be making the classic mistake of aping the competition and failing to provide any real point of differentiation between Jack’s and the Aldi / Lidl’s of this world. “Me too” products very rarely if ever make any impact. We have to ask the following question. Is there sufficient differentiation to attract customers to this concept? I am not fully convinced.

There is a tendency for shoppers to make more use of “top-up” shopping. Aldi and Lidl have benefited from the convenience they provide to shoppers in the form of small product ranges, small stores and ease of access. Jack’s falls into this category but may not make any inroads on these established discounters.

The emphasis on Britishness might appeal to people who support Brexit and, in the event of a disorderly and messy exit from the EU, might be seen as tangible evidence of a “siege mentality”. This might generate some sales but is it likely to create long-term benefits?

Let’s review the case in a future blog.

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NEVER KNOWINGLY UNDER-BRANDED

The John Lewis Partnership has been one of the enduring retail success stories of the past twenty years or so. Until recently it was right up there as one of the most profitable retailers. Recently, mainly due to the shift from bricks and mortar, the increases in business rates and the general struggles of Department stores, it has encountered a rocky patch. This is likely to be reflected in a profit warning in his interim results to be presented in mid-September 2018.

Coincidently it has also undergone it first major brand-refresh in seventeen years. This attracted my attention as it can provide some interesting learning points for us as we study retailing in general and branding in particular.

What does “re-brand” entail? How is it likely to potential impact on the future direction of the business? Let’s examine these issues in greater detail.

The John Lewis Partnership involves two “strings to its bow. The John Lewis Department stores and the Waitrose chain of supermarkets. The main points of differentiation across the two operations have focused on its “partnership” model and an emphasis on customer service and quality products.

In the case of the partnership model the emphasis is placed squarely on the role played by its employees – referred to in all cases as partners. It is also reflected in the way in which they are remunerated: each year a proportion of the profits are shared out by way of bonuses across the partners. This approach has often been highlighted by business consultants in general and Human Resource specialists as an innovative mechanism for motivating and rewarding loyal staff. Problems may arise however when the level of profitability slows and there is no mechanism for paying bonuses.

The John Lewis Partnership is re-branding itself by inserting the “& partners” alongside its logos – resulting in John Lewis & partners and Waitrose & partners.

Cynics might suggest that this is a cynical attempt to seize upon its traditional emphasis on its partners, at a time when its ability to pay bonuses is restricted due to a decrease in profitability. An even more cynical view would be that management is using this approach to demand more from its partners in an environment where the National Living Wage has been increased and where it has cut its staff to allow for the wage increases that are necessary to meet the new demands placed on them by the government.

Critics of “branding gurus” also might argue that simply adding a couple of “vacuous words” to the logo and fascia is unlikely to have any real impact on revolutionising its retail strategy.

The counter-argument revolves around the need for retailer brands such as John Lewis and Waitrose to focus on its key points of differentiation, particularly in a sector which has and continues to undergo major changes in customer behaviour and technology.

An acid test for adjudicating on the appropriateness of a re-brand is the amount of money the company is allocating to the proposed changes.

The John Lewis Partnership plans to spend upwards of £500 million over the next three years on product and service innovations. In particular it will address the need to come up with unique products, more personalised service to its customers and expanding its range of own-labels from thirty to fifty per cent of overall revenue across the two businesses. It also plans to sign agreements (in the case of John Lewis & partners) with a range of relevant international brands to further reinforce its reputation for selling quality products.

In order to address the re-focused pre-eminence of its partners, it envisages a major overall in terms of how to enhance the quality of the shopper experience. For instance all partners will be equipped with iPads and an app which will allow them to send suggestions via email and SMS to customers. They will also engage more proactively via social media platforms with comments and suggestions that reflect the personal preferences and perceptions of shoppers.

In the case of John Lewis & partners their roles will also change. In the case of relatively complex items such as beds, computers and nursery products, partners will in effect become product coaches and advisors. This focus on expert advice is seen as a critical dimension in terms of enhancing the quality of the customer experience.

If we move to Waitrose & partners we will see greater focus on enhancing the roles of partners. They will present themselves as wine and cheese experts, fruit & vegetable facilitators, healthy eating specialists and coffee baristas. This, management argues, will not be just a genuflection to the concept of retail as theatre: partners will be provided with the necessary training to allow them to perform as proper experts, as opposed to playing at being gurus!

The essence of brand equity in my view revolves around the basic principles of trust and confidence on the part of customers and the extent to which this is reflected in their ongoing loyalty and commitment.

We must remember that in both cases (John Lewis and Waitrose) it has long held a strong reputation for service and product quality. This has allowed it to de develop a strong level of brand equity. By achieving this status it also means that loyal customers are willing to pay a premium for items purchased in both dimensions of the overall business This means in theory that they are less resistant to the vagaries of recessionary periods.

In many ways the new strategy proposed is a reinforcement of its existing brand essence.

The partnership also plans to work more closely with its suppliers in general and its farmers in particular. They are seeking improvements in quality while at the same time being conscious of the necessary changes they need to make in order to address more general environmental concerns.

For instance by the end of 2018 they plan to stop using black packaging for meat, fruit & veg and fish products. By 2019 they have set a target of eliminating such packaging totally.

It explains away the impending profit warnings by arguing that major investments in logistics and IT have placed some strain on its resources and that there will be long-term benefits accruing from such initiatives.

It remains to be seen if they can achieve its improvements by focusing on the “people” factor. We are not privy to internal marketing research which they may have conducted. The re-brand” appears to be predicated on the belief that its core shoppers will respond in a very positive fashion to the enhancements in the customer shopping experience that are expected to flow from the initiatives.

Likewise the two businesses will also be expected to drive such enhancements across its online channels.

Is this a minor tweaking of existing core differentiators? Or is it the precursor to a major rejuvenation of the two brands? It is too early to make a coherent observation at this stage. Brands, like humans, need an occasional “freshening up”. Given that it is seventeen years since the last “re-brand” it may be the right time to make such changes. Let’s see what happens over the next year or two.