City trad­ing ty­coon on en­joy­ing life and back­ing Brexit

The su­per­mar­ket gi­ant has taken more than its share of hard knocks re­cently, but Ben Woods finds out about its thirst to be the come­back kid

The Sunday Telegraph - Money & Business - - Front page -

The town of Chat­teris in Cam­bridgeshire knows a thing or two about a good brawl. It was put on the map in the Seven­ties by Dave “Boy” Green, a wel­ter­weight box­ing cham­pion who was known as “The Fen Tiger”. On Wed­nes­day, an­other Dave had de­scended on the area to pre­pare for a dust-up. Tesco had bussed in jour­nal­ists from Lon­don to re­veal the gro­cer’s grand plan for fight­ing the Ger­man dis­coun­ters.

Tesco still com­mands 27.4pc of the mar­ket, but Aldi and Lidl have in­creased their com­bined slice to 13.1pc, ac­cord­ing to Kan­tar World­panel data.

A coun­ter­strike came in the shape of Jack’s, a new dis­count chain named af­ter Tesco founder Sir Jack Co­hen. The bud­get su­per­mar­ket will have 2,600 lines, in­clud­ing 1,800 own­brand prod­ucts that will be the “cheap­est in town”. Its first two stores were launched in Chat­teris, and in Im­ming­ham, Lin­colnshire, on Thurs­day.

To add mus­cle to his pitch, Tesco chief ex­ec­u­tive Dave Lewis res­ur­rected the me­mory of Sir Jack through a pol­ished pre­sen­ta­tion of Tesco’s his­tory. Di­alling up the drama, he told jour­nal­ists that it was what he “would have wanted and what he would have done”.

In­deed, walk­ing into the Jack’s store for the first time felt like a time warp. With wide aisles, no-frills dis­plays, and “When It’s Gone It’s Gone” of­fers, the chain is as much a nod to Aldi and Lidl as it is to the su­per­mar­kets of yes­ter­year. Prices felt nos­tal­gic too – a whole chicken for £1.60 and a tin of baked beans for 29p.

A source at Lidl said Jack’s had “sent a pretty pos­i­tive mes­sage” to its cus­tomers that “Lidl’s tried-and-tested dis­count model is in­spir­ing com­peti­tors”. It is un­der­stood that Aldi has re­sponded by launch­ing a re­view of its prices.

While an­a­lysts were pre­dom­i­nantly pleased to see Tesco come out swing­ing, many were un­der­whelmed by the scale of the plans.

For now, Lewis ap­pears re­luc­tant to put Tesco’s colos­sal power to work, opt­ing in­stead to bide his time by open­ing a mod­est 10 to 15 stores within the next year through a £25m in­vest­ment.

Clive Black, the Shore Cap­i­tal an­a­lyst, says Jack’s would be a “demon­stra­ble fail­ure” if it re­mains that size.

“The next step is likely to in­volve a co­hort of Tesco sites, pre­dom­i­nantly Metro stores, in low-in­come dis­tricts across the UK where Jack’s will find it­self first,” he says. “We have iden­ti­fied 60 stores of that na­ture.” Tesco’s near-800-strong chain of One Stop stores could of­fer an­other chance to ex­pand Jack’s quickly, al­though th­ese sites may ul­ti­mately prove too small for the for­mat.

One point of dif­fer­ence Tesco plans to use to its ben­e­fit is the su­per­mar­ket’s British her­itage. To for­tify this mes­sage, Tesco has com­mit­ted to mak­ing sure eight of out 10 Jack’s prod­ucts will be made or grown in Bri­tain.

De­spite be­ing launched in moth­balled Tesco su­per­mar­ket sites, Black be­lieves the lo­ca­tion of its first stores were made with the “brand Bri­tain” mes­sage in mind. He says: “There are Union Jacks ev­ery­where and they are say­ing to Aldi ‘you are a Ger­man com­pany with Union Jacks on the prod­ucts, and we are a British com­pany with Union Jacks on the prod­ucts’, and I think that is quite no­table, ac­tu­ally.

“In places like Chat­teris and Im­ming­ham, which are big Brexit towns, that will res­onate.”

Tesco started in 1919 when Jack Co­hen be­gan sell­ing gro­ceries from a stall in Lon­don’s East End. The brand was born five years later when he bought a tea ship­ment from a Mr TE Stock­well. He com­bined the ini­tials from the name with the first two let­ters of his sur­name to cre­ate Tesco and launched its first flag­ship store in Burnt Oak, North Lon­don, in 1929. What fol­lowed was a re­mark­able feat of en­ter­prise.

Sir Jack built Tesco’s first head­quar­ters in the Thir­ties and floated Tesco Stores on the stock ex­change in 1947.

Sales hit £1bn the year Sir

Jack died in 1979. It would go on to dom­i­nate the British gro­cery sec­tor, launch­ing an on­line busi­ness, a bank and the loy­alty scheme Tesco Club­card.

Tesco’s lat­est ven­ture could also be viewed as an at­tempt to re­write the past. While the com­pany has dom­i­nated the gro­cery mar­ket’s mid­dle ground, pre­vi­ous at­tempts to break into dis­count­ing have fallen flat.

Its pre­vi­ous foray stems back to a £1.75m deal struck in 1968 when it swooped for the dis­count chain Vic­tor Value. Ini­tially, the bud­get gro­cery chain’s renowned VV logo dis­ap­peared from the high street, but by the 1980s Tesco de­cided to re­boot the brand by trans­form­ing a string of small Tesco sites into Vic­tor Value stores.

The con­cept, how­ever, did not sur­vive. Tesco bosses used it as a test bed for tri­alling scan­ning and bar­code ma­chines but by the time 1986 ar­rived, it had called time on the op­er­a­tion and sold it to the frozen food re­tailer Be­jam. The de­ci­sion is said to have stemmed from con­cerns that Vic­tor Value eroded the Tesco brand.

Th­ese con­cerns re­main ripe to­day. Jack’s may prove a cred­i­ble threat to Aldi and Lidl, but it could also be a men­ace to Tesco’s ex­ist­ing busi­ness. Plans by Tesco to open Jack’s stores near Tesco su­per­mar­kets could cause cus­tomers to switch away from the flag­ship brand. Cheaper prices at Jack’s could also cause the core Tesco cus­tomer to ques­tion their loy­alty.

Lewis says Tesco would rather “can­ni­balise our­selves” than lose cus­tomers to ri­vals. Are Tesco’s top brass be­ing braver than their pre­de­ces­sors, or more des­per­ate?

An­other warn­ing for Tesco can be found at “Big Four” ri­val Sains­bury.

Bri­tain’s sec­ond-big­gest su­per­mar­ket laid the ground­work for an as­sault on the dis­count mar­ket in 2014 by bring­ing Netto back to the UK mar­ket. Its rai­son d’être for Netto was no dif­fer­ent. It wanted a so­lu­tion for the Ger­man dis­counter’s at­tack on its mar­ket share that would take the heat off its core busi­ness. But by 2016, the game was up for Netto. It had failed to crack the UK mar­ket for the sec­ond time.

Bryan Roberts, a re­tail con­sul­tant at TCC global, is con­fi­dent Jack’s will not go the same way as Netto. “With Tesco be­ing able to lever­age its huge scale for Jack’s, com­bined with the hy­per­ef­fi­cient op­er­at­ing model, this is a new dis­count chain with much stronger foun­da­tions than sev­eral pre­vi­ous at­tempts in the UK gro­cery mar­ket.”

A suc­cess­ful roll-out of Jack’s could change the way cor­po­rate his­to­ri­ans re­mem­ber Lewis’s Tesco legacy. When he was parachuted in back in 2014, Tesco sales and prof­its were stuck in re­verse. It was forced to slash its div­i­dend and was hit by a deeply dam­ag­ing ac­count­ing scan­dal when ad­mit­ted to over­stat­ing half-year prof­its by £250m.

More re­cently, he has sealed a string of deals that have brought some swag­ger back to Tesco, in­clud­ing a £4bn swoop for the coun­try’s largest whole­saler Booker. Al­though small in scale at the mo­ment, Jack’s may well

shape up to be his bold­est move yet. Lewis will never truly know whether Sir Jack would have ac­tu­ally ap­proved. How­ever, it would be safe to as­sume that af­ter Tesco’s pro­longed pe­riod of strife, the com­pany’s founder would have been happy to see it ready to do bat­tle.

Tesco opened its first bud­get store, Jack’s, named af­ter its founder, Sir Jack Co­hen, on Thurs­day. The chain hopes to com­pete with bud­get stores Aldi and Lidl says chief ex­ec­u­tive Dave Lewis, be­low

Tesco founder Jack Co­hen

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