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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