Union Jack's

Tesco throws down gauntlet to Aldi and Lidl

Tesco Plc Launches ‘Jack’s’ Discount Store Chain
Buy British – or else. Source: Bloomberg

The British supermarket giant Tesco is going back to its roots. The 99-year-old chain began life as a bargain basement for thrifty shoppers, with its founder Jack Cohen earning the nickname “Slasher Jack” for his discount approach. It wasn’t until the 1990s that Tesco ditched its high-volume, low-cost model and moved decidedly upmarket. But now, as retailing winds shift and the German discount retailers Aldi and Lidl steal hard-won market share, Jack’s back.

Tesco is fighting back by launching its own cut-price chain, named after its founder. The first two branches of Jack’s open on Thursday in the small town of Chatteris near Cambridge and in the northeastern town of Immingham.

In a swipe at the Germans, Tesco has pledged that eight out of 10 products Jack’s sells are grown, reared or made in Britain. To ram home that point, the Union Jack flag is ubiquitous on walls, shelves, price tags and packaging. The whole feel is faintly nationalistic.

A beneficial side effect of the buy-British approach is that Jack’s may be less vulnerable to possible supply problems caused by Brexit next year. But Tesco Chief Executive Dave Lewis said Brexit had no bearing on Jack’s business model, which was planned before the June 2016 referendum.

Don’t discount discounters

Mr. Lewis said Tesco plans to open 10 to 15 Jack’s stores over the next six months. But its push for discount domination is, aptly, being done on a budget: The group has earmarked just £20 to £25 million (€22.5 to €28 million) for the project. The caution is understandable given that Tesco and other British retailers have tried and failed to make discount models work in the past.

But the intense German competition has sparked upheaval in the sector and triggered a hunt for an Aldi-killing formula. Aldi wants to increase its UK outlets from 760 now to 1,000 by 2022 and Lidl plans to open 50 stores this year. The pair almost doubled their market share in the UK grocery trade to 13.1 percent in the past five years. Tesco’s has fallen to 27.4 percent.

Britain’s second and third-largest retailers, Sainsbury und Asda, responded to the discounter threat by announcing a merger which is still being checked by cartel authorities. Tesco and France’s Carrefour, meanwhile, plan to launch a purchasing alliance in October.

Apart from the British flags everywhere, Jack’s has unmistakable similarities with Aldi and Lidl. The product range is limited to 2,600 compared with the average of 20,000 in Tesco supermarkets, and 1,800 of them are own brand. Aisles are wide to allow shelf stacking during opening hours and many products are displayed in their bulk packaging. Such measures lower operating costs and prices, said Mr. Lewis. Jack’s staff also get paid less than their Tesco colleagues.

But experts think Tesco has still got its work cut out. “Jack’s stores will fail, because you can’t beat Aldi at being Aldi,” wrote marketing expert Mark Ritson in Marketing Week magazine.

Aldi has honed its business model and combined high quality with low prices. “You don’t win by beating your competitor at a game they have been playing for decades,” he wrote. “Let Tesco be Tesco.”

Kerstin Leitel is a correspondent for Handelsblatt in London. David Crossland adapted this article into English for Handelsblatt Global. To contact the author: leitel@handelsblatt.com

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