Why we all need to watch what Tesco does with Jack's?

Really? Another wannabe discount retail brand? What is there to watch?

Well, yes on the face of it not a lot other than another example of our once great, world leading, multiple retailers ripping up the past to simply follow the trading strategy of a much weaker retail competitor. Can we really imagine a Tesco in its 80's or 90's pomp, under the leadership of Lord MacLaurin or Sir Terry Leahy, setting up a standalone discount retail chain to compete with the German chains Aldi and Lidl? Retailers that still only have a combined share of just over 13% of the market, which is still less than half of what Tesco (27.4%, Kantar) tots up every year.

Exactly, so why should we get so excited about it?

Dig a little deeper into those figures and you can see why Tesco - and the other Big Four multiple supermarkets - are tying themselves in knots in a bid to find an answer to the year-in-year-out growth of the German discounters. Over the last decade Aldi and Lidl have been directly responsible for taking £7 billion in sales away from Tesco, Asda, Sainsbury's and Morrisons combined. At its peak £32 in every £100 spent in a supermarket went to Tesco, now it's down to £27.40. The launch of Jack's comes at a time when finding even half a percent in growth has proved hard for the major supermarkets. They are bogged down with their own head-to-head competition, rising import and food costs, huge increases in their property rents, rates rises and a lop-sided wage structure that does not have the growth levels in the business to support it. Shareholders and investors are nervous and restless. The analyst peanut gallery is firing on all cylinders and the Big Four are struggling to come up with the answers.

And Jack's is the route back to salvation?

Hardly. But there is a sense of if you can't beat them join them. Jack's is not just a nod to the discounters, it is Aldi and Lidl re-invented with a few more union jacks and PR clarion calls to British producers thrown in along the way. Even then its British first strategy is already very much part of the German discounters' DNA - Aldi says it spends £100m with British suppliers a week. It's also hardly going to get retailers from all over the world rushing to suburban Britain to see what amazing innovations Tesco is introducing at Jack's. But what it has done has got the financial and business chattering classes taking about Tesco in a mostly positive light again. It is helping to drive an effective PR message out to the shopping public that Tesco can do more than just match the discounters on price it can potentially beat them at their own game. Even if the reality is somewhat less dramatic than that. We are only talking about two stores here and the hardly hold on to your seats promise that there will be 10 to 15 more over the six months. There are independent c-store retailers with a more ambitious growth strategy than that.

So what does it mean then?

What Jack's has already done is help reset the retail conversation. It has once again, just in case producers had any thoughts of grandeur, put price firmly back at the top of the agenda. We live, as we know, in uncertain times with the prospect of Brexit, deal or no deal, only six months away. With Jack's, Tesco is hoping to re-confirm its position as the pace and agenda setter of the grocery retail sector. The worry for all those that supply it, and the other major grocers, is that it is doing so with such a low price driven strategy. We also have to consider that Tesco's chief executive, Dave Lewis, has a long held promise to the City that, even in these rough trading conditions, that the group will earn between 3.5p and 4p of operating profit for every £1 that a customer spends with it by 2020. To reach those kind of figures will require even more streamlining, cost cutting and breakthrough measures such as Jack's and its proposed partnership with Carrefour to co-source close to 20,000 products for its respective stores.

So where does wine fit into all that?

It may not be flagged up in the trading statements, but have no doubt that wine is very much one of the central categories that can help all this happen. Wine attracts the right kind of customer. Just look at how Lidl and Aldi have made wine such a hero category to draw in well heeled customers that help push up average basket spends and draw those billions of pounds in sales away from the Big Four. Aldi, for example, announced this week that it has sold 6.2m bottles of wine online since it launched its fledgling e-commerce site in 2016. But whilst the discounters appear to have aspirations to aim higher with wine, the message from Tesco HQ is that it wants to be the “cheapest in town”. Which for Jack's means selling its cheapest wine (above 10% abv) at £3.15, the same as Lidl, or £3.69 at Aldi. Or about 30p-40p of wine after VAT. Yes, Jack's might be tiny in the overall scheme of things, but it shows how Tesco is thinking, and what rocks their boat, which, in turn, will have a knock-on effect to all major retailers and their suppliers. If you want to do business with them, work out what the discounters are doing, how you can make a difference, help save them money, cut costs, and work up from there.

  • This article was published in Grapevine on October 4 that I produce for The London Wine Fair.