Tesco’s ru­moured bud­get push

The gro­ceries go­liath is ru­moured to be launch­ing a new dis­count brand

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Re­ports sug­gest Tesco (TSCO) is about to launch a new dis­count chain named Jack’s as part of wider ef­forts to com­bat com­pe­ti­tion from Aldi and Lidl. We pre­vi­ously re­ported in Fe­bru­ary that Tesco was weigh­ing up a bud­get for­mat launch. It is now ru­moured the Jack’s fas­cia, named af­ter Tesco co-founder Jack Co­hen, could hit the UK high street in Septem­ber.

Tesco, which re­cently an­nounced a strate­gic al­liance with France’s Car­refour, is tight-lipped on the topic. If the story is true, the new sub-brand will be an es­tate of lim­ited as­sort­ment dis­coun­ters (LADs) bet­ter placed to com­pete head on with Aldi and Lidl.

Given own­er­ship of Booker and its new Car­refour tie-up, Tesco is likely to have the buy­ing power to make Jack’s a suc­cess, although Glob­alData re­tail an­a­lyst Thomas Br­ere­ton says this is a risky re­sponse to Aldi and Lidl, since ‘or­ches­trat­ing the emer­gence of a new brand with­out dam­ag­ing the rep­u­ta­tion of the main Tesco im­age will re­quire pin­point pre­ci­sion to suc­ceed’.

Tesco last tried the dis­counter ap­proach in the mid-1980s un­der Vic­tor Value, but it was even­tu­ally aban­doned, blamed on the un­der­min­ing of the main Tesco brand.

‘To us there is unlikely to be ma­te­rial down­side from Jack’s birth al­beit whether he moves the dial for the group or the wider in­dus­try mar­gins re­mains to be seen,’ coun­ters Shore Cap­i­tal an­a­lyst Clive Black. Yet he does ques­tion whether Jack’s can make a dif­fer­ence in a busi­ness of Tesco’s gar­gan­tuan size.

‘Sixty stores or so is not likely to move the dial for Tesco al­beit if they are par­tic­u­larly chal­lenged or com­monly char­ac­terised out­lets then per­haps a new fas­cia can make them more pro­duc­tive?’, won­ders Black.

As CEO Dave Lewis is suc­cess­fully sim­pli­fy­ing Tesco, adding a new brand and as­so­ci­ated cap­i­tal ex­pen­di­ture re­quire­ment adds a com­pli­cat­ing fac­tor to the busi­ness. (JC)

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