Tesco’s rumoured budget push
The groceries goliath is rumoured to be launching a new discount brand
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)