Aldi - What is their reaction to Jack?
1 October 2018
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Whilst it's only two stores and a small expansion plan to further stores, most of which were under trading Tesco stores..... It's fair to say that the German discounters are hardly going to be too concerned.
However what did for Netto with Sainsbury's was the scale, or lack of which meant their business model was never going to work. Whilst Netto stores were pleasant and featured numerous continental products alongside British pledges and the like.
However it was a hands off approach from Sainsbury's who were further away on price vs. Netto than Tesco have ever been vs. Jack's. The model was almost 'dropped in' and the lack of any store opening further south than the M62 belt may go down as one of the great missed opportunities of recent years.
The one thing Tesco has the ability to do is turn on an 'at pace' roll out of Jack's once the model is proven across these trial stores, most of which are ex Tesco units or existing space in the estate.
Tesco have a large land bank and one can only guess they may have further sites that they could have exited, or leased to others that may end up being suitable for transfer to this format.
Equally there are existing stores and new space that will remain an opportunity, particularly as trade continues to ebb and flow. Business rates have been a thorny point for a number of months now and only seem to set to continue...
As discussed numerous times before, an Aldi, or Lidl opening nearby can tip a profit making store in to one that makes a loss and added to the living wage rises and the threat of a recession and all that goes with it......
It makes sense to have a format that suits this future requirement as a defence against the onslaught from discount, allowing the fixed cost to be reduced for stores (IE colleagues that can be moved to stores with a requirement) and also one that can capitalise on any land that comes up.
It's clear that with no one building huge stores any longer, land owners will make land available that will fit a discount sized supermarket alongside other services and amenities. To have a format that suits this whilst allowing that site to be competitive against discount but also to offer what the customer wants is invaluable.
Thus Jack's makes sense; if only for the ability to look at the sprawling Tesco estate and provide a future for stores that are under pressure from discounters and where Tesco need to be more competitive but their current supermarket offer doesn't allow.
Equally, it can be a very important tool in the armoury when considering that this format could happily sit at the bottom of a competitors car park, almost like Aldi and Lidl have done to Tesco in a number of cases.
Interesting times. So to Aldi firstly, what have they been up to? Not just in terms of the Jack's launch but particularly on price. Even in sunny Bradford, everyone will be looking at price.
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Well, Aldi have some new signage around for value, including price cuts and 'lower prices' which are flagged around the store.
Some of these are not necessarily linked to Jack's, but some were (Steak e.g.) down by 10p.
Perimeter signage had been updated too, providing another halo around value and quality too.
It's not an easy blend though, talking about price and also quality the same time. Customers are generally cynical and assume the two do not go hand in hand. Ironically Aldi and Lidl have done a good job of reversing this trend with their offer.
But with Tesco launching Jack's to great fanfare from the wider press but also having to consider their value products and indeed, the price gap between a newly rebranded Tesco value line and their own categories where a value product doesn't exist....
It isn't easy to do both.
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A good blend of quality and value on the perimeter signage around the store, particularly in Frozen and Fresh Foods too.
Increasingly Aldi are following Lidl down the road of adding branded lines in to their special buys, often with varied results.
Lidl have adopted the strategy for over a year now with shippers everywhere and some of the specials section looking like a run down version of B&M. Indeed, Kantar flag the branded share of Lidl going up each month.
Their special buy ranges have increased on a huge basis to drive this branded increase.
Of course suppliers 'want in' on the discounters, they provide volume and don't generally bother with brands... So there ends up being deals done that don't necessarily help the brand but they are desperate for growth so limited buy specials and shippers are the future.
It probably underlines that the branded guys still have no real idea of what to do about discount if anything. But it's noteworthy to see both Aldi and Lidl doing this, clearly brands remain very important to customers and low prices always win through.
What does it do to the equity of their own label though? Large packs Surf are a good price but they've spent years telling everyone that their own label powder is better than them all anyway.
It's a big bonus around discount when considering the shopping time, an 'added bonus' almost. Customers don't spend too long shopping as they can be around the store in no time, especially if they cut out the middle aisle of Bongo drums, inflatable unicorns and the 30 piece multi use screwdriver.
Therefore with convenient locations (their store size and footprint means that they're able to pop up all over suburbia) alongside a moderately sized car park can mean that convenience stores come under pressure from Aldi, or Lidl for that 'top up shop'.
Certainly when you move in to later evening and the stores are quieter, the prices are low and the products are generally good. If they're local, it becomes a no brainer.
That could spell trouble for the likes of Tesco Express and the Co-Op where applicable... Aldi are clearly aware of this shift in customer mission and dedicate the 'end' of Fresh Foods to ready meals and a meal deal layout (no overarching deal though).
Jack's did the same, they used the first bay of Fresh Foods for the 'big night in'.
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To go back to special buys; their stock levels look hefty each time I visit and appear to be on the rise once more. Indeed, some stores that are 'cannibalising' other local Aldi stores still get the same huge levels of stock that others get....
So it doesn't seem to make sense around opening a store that may help the other, but not be as busy as expected to still drive masses of stock at them.
Slowdown in spending has also hit the middle aisle, 'you just don't need it' would be the mantra that many customers would use. Especially at the eclectic ranges that can appear, however some collections represent excellent value - Toys particularly last year were strong.
It was the first year I can recall (in 3/4 years) that Aldi had school uniform left over. They've either bought a little too much and demand hasn't matched up, they usually sell out inside the first week....
Equally, after that long, hot summer we had, having any element of Summer / Pool / Outdoor based range left is a disaster, whichever way you stack it up.
Some lines then look bizarre, many stores have had these huge stacks of large pack own label toilet tissue everywhere. Surely it's just self cannibalisation? You end up feeling like one of the Borrowers given the bulky nature of the product.
More consideration needed on special buys, they're a necessary evil but the levels are more than hefty in some stores. They are also trading online for this range too, does that really help?
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Illustrating this point nicely were Aldi, in Immingham that was deathly quiet given the excitement at Jack's over the road, alongside Home Bargains trading well too.
Retail is a long game though, Jack's are boosted by intrigue, PR and coupons whereas Aldi who through no real fault of their own necessarily are left looking quiet....
It's always about standards and not upsetting customers so they're happy to return to spend money with you. Price and products play a major part in that but it can come down to the finite details and sometimes customers are incredibly fickle.
You'd therefore perhaps expect Aldi to be more 'on point' given the major competitor opening over the road the previous Thursday.....
However the store wasn't strong in the key focal areas such as Produce.
To repeat, retail is a long game.......
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From the Grocery Insight newsletter archive, first sent to subscribers on 1 October 2018. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.