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 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