Black­friar

Yorkshire Post - Business - - BUSINESS / NEWS -

If the ru­mours are true, next week Tesco, the UK’s big­gest gro­cer, will launch a new chain of dis­count stores called Jack’s, named af­ter its founder Jack Co­hen.

The plan is to con­vert some unloved Tesco stores to the new for­mat to take on Ger­man ri­vals Aldi and Lidl, which have stolen a size­able chunk of the UK gro­cery mar­ket.

Fraser McKe­vitt, head of re­tail and con­sumer in­sight at Kan­tar World­panel, said Aldi and Lidl now ac­count for over 13 per cent of take home gro­cery sales and are grow­ing at 10 per cent each year.

He said that strate­gi­cally, it makes sense for Tesco to con­sider its own dis­count chain and try to cap­ture some of that growth.

The big four su­per­mar­kets now make up less than 70 per cent of UK gro­cery sales – down from 76 per cent a decade ago.

Mr McKe­vitt said the chal­lenge for Jack’s will be reach­ing the scale re­quired to op­er­ate ef­fi­ciently.

For Jack’s to make any no­tice­able dent in com­peti­tors’ mar­ket share, Tesco will have to make a con­sid­er­able in­vest­ment in the pro­ject and de­pend­ing on the speed of store roll­out, it could take years to achieve crit­i­cal mass.

“Typ­i­cally, dis­coun­ters can offer cheap prices be­cause of the sim­plic­ity of their op­er­a­tions,” said Mr McKe­vitt.

“Tesco has high lev­els of staff, ser­vice and prod­uct choice so would need to learn to func­tion in an en­tirely new way, though the com­bined Tesco-Booker sup­ply chain and lo­gis­tics net­work could pro­vide some im­me­di­ate ef­fi­ciency gains.”

One big ques­tion is how Tesco should po­si­tion its new brand.

“As the largest re­tailer in the coun­try Tesco is ex­posed to the great­est risk of can­ni­bal­is­ing its own sales – what’s go­ing to stop cus­tomers leav­ing Tesco for this new re­tailer?” asked Mr McKe­vitt.

Tesco will have to keep the two brands very dif­fer­ent from each other to make sure it takes more from its dis­count ri­vals than it loses it­self.

This is an area that Sains­bury’s tried to en­ter in 2014 when it launched its York­shire-based Netto dis­count ex­per­i­ment, which sub­se­quently died with a whim­per.

Netto’s 16 stores were closed in 2016 af­ter fail­ing to make a big enough profit. This echoes Mr McKe­vitt’s claim that a new store chain needs to reach a big enough size to op­er­ate ef­fi­ciently.

An­a­lyst Clive Black at Shore Cap­i­tal said Tesco’s tar­get could be prob­lem Metro stores. Tesco Met­ros are smaller than a su­per­store.

Mr Black said there are be­tween 50 and 100 prob­lem Metro stores, but this would be a lot of ef­fort for 100 small stores.

Many of the Jack’s con­ver­sions could be smaller su­per­mar­kets that trade in tough mar­kets with low lo­cal in­comes and high lev­els of com­pe­ti­tion from the dis­coun­ters.

Tesco could choose to fill

Jack’s with its low priced ‘farm’ brands (such as Rosedene Farms

One big ques­tion is how Tesco should po­si­tion its new brand.

and Wil­low Farms), which were in­tro­duced to take on the dis­coun­ters.

This would make sense. Once you re­move big brand names like Coca-Cola and Heinz plus Tesco’s Finest ranges and every­day Tesco mid-priced brands, you cre­ate a to­tally dif­fer­ent store.

Cash-strapped cus­tomers who can’t af­ford big brands and The Finest range would nat­u­rally mi­grate to Jack’s. A per­son on a tight bud­get does not want to view brands and items they can’t af­ford. They just want to view what they can pay for. Aldi and Lidl shop­pers may well be at­tracted to Jack’s.

Equally, shop­pers who aren’t so stretched would not want to limit them­selves to just ‘farm’ brands so they wouldn’t go to Jack’s, they’d stick with Tesco.

What­ever Tesco does launch next week, its ri­vals will be pay­ing close in­ter­est.

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