Jack's open today!

20 September 2018

Image light email! The train has no hot drinks, or Porridge this AM so the wi-fi is not rapid either. Therefore it's a word based note. Images to follow under separate cover(!)

Arguably one of the more interesting aspects to the day yesterday was the video wall presentation with surround sound, giving one the experience of being with Jack as he built up his market stall business that subsequently turned in to Tesco....

There were bits from Jason Tarry, Lord MacLaurin talking about Checkout 82 and Sir Terry discussing Clubcard and how important that was for Tesco.

Oddly, the years 2011 to 2014 were entirely airbrushed from history. Rightly, of course but again, we nod to the fact that Tesco was in disarray before Dave Lewis arrived to the chain.

There is much more to tell on that front, including easily a book or two, but we shall see. If you delve in to the archives, there is so much to forget in terms of the acquisition strategy but also the inordinate amount of money wasted on buying failures, ultimately.

Blinkbox was never going to work despite Tesco efforts to roll services together under one banner and the like.

The Blinkbox name is one you remember and was ultimately moved on, but we should also remember that £10m was spent on an internet radio station part owned by Peter Gabriel.....

So in terms of the Jack's mission at large; two stores open today (Immingham and Chatteris) with a further two each fortnight until they reach their 10-15 target by the end of the year.

There is a mix of sites, one is a new build next to a Tesco Extra (believed to be Haydock, St Helens Extra) but others are mentioned too (Barnsley a notable one).

Other sites are existing property, ones such as Chatteris where Tesco mothballed the site and the conversions from the main estate where the core model in those locations doesn't provide a proposition to compete.

In terms of the future; there isn't a plan to commit beyond this and it seems that this has been taken as a lukewarm, trial that serves no purpose.

Of course we can all recall the huge commitments by Sir Terry with Fresh & Easy of course that he was repeatedly beaten with and also then Dalton Philips who announced a 300(?) strong target for M Local - ending in the early hundreds before a sell off.

Therefore it's perhaps likely that there is a real ambition beyond this number, but locations and different demographics need testing and trialing before further commitments are made.

Especially when you consider the refit requirements. Chatteris will be an easier nut to crack due to the newer building and the fact it was a blank canvas. However an ex Metro will be tougher as there could be a challenge with chillers and depending on the internals, varying work to do there of course.

So an initial trial is wise, but the one thing that killed off Sainsbury's / Netto was the lack of scale, or ambition to get to scale....

However Tesco have the ability to scale relatively easily, we have always known they have a huge land bank and space aplenty to repurpose too.

The thorny issue of cannibalisation was also much talked about but it's probably similar to the challenge that comes when you calculate the volume swing needed to make a price cut work.

There is always a risk of cannibalisation but Chatteris is a new site for Tesco, they are not particularly nearby any existing Tesco and this format has the potential to generate new sales for the 'Tesco family' in that way.

Which would worry competitors, particularly the likes of Sainsbury's and Waitrose who struggle in the face of lower priced operators who are perceived to offer quality.

Thus driving a halo effect to the Tesco business as a whole. There is certainly space for new sites in this arena, the demise of Poundworld has left a number of sites open for acquisition of course.

In terms of cannibalisation, as noted, better to cannibalise yourself and the challenge for the Jack's near the Tesco stores is that they attract customers back from Aldi (net gain as those customers have left anyway).....

In terms of the offer itself; it's a pure EDLP offer without any promotions at the shelf edge.

The range count is 2600 with 1700 own label, 800 brands and then 100 I think covering the special buys and Booker aisle of bigger packs.

The own label is 100% Jack's, no mention of Tesco (save for the back of pack with the Tesco family) and intriguingly, the exclusive to brands (replacing value) do not appear at all.

There is no Jack's in Wines (it's all house label type lines, same in Health/Beauty). Branded confectionery gets a bay (who gives the Aldi chocolates to customers e.g.) and brands are dotted around numerous categories as appropriate.

The work for Jack's has been facilitated by the introduction of the Tesco exclusive brands of course, which provide a bridge to any price gap and also cloud the issue for discounters around comparative products.

Not an easy defence for Aldi, or Lidl to mount when they're trying to compare value lines versus their own core products. Indeed, some of their products that Tesco are matching are value tiers of their own too.

There was a lot of talk about 'following' in discounters to be 'the cheapest in town', rather like Ireland for those who have been subscribers to this service will recall notes on the same subject.

British was another key point with 8/10 products coming via Britain in terms of production / sourcing etc. Not just processed, which indicated there was a distinction between the claims of say, Aldi or Lidl.

Not unexpected given the huge focus by discounters on the British claims and provenance, it's a chameleon like stance as visiting Ireland, they do the same, just with the Irish flag everywhere.

In terms of the wider product range, it was extensively British where possible, naturally Bananas can not be...

Ready meals looked hefty at a high level glance and some categories will potentially require a level of curation, but you don't know until you try.

Efficiencies were evident in terms of some merchandising units pre filled with Tomatoes e.g. alongside boards for toilet rolls and there were some self service checkouts too.

Elements had been 'stolen' from Aldi, such as the small wheels on the merchandising racks that enable cases of Produce to be easily sited on shelf.

The store also features Bakery and a small Coffee machine which was interesting but came via customer feedback. Certainly Lidl Ireland push Coffee machines in their stores but we've not seen it elsewhere in the market.

So what do we think?

In terms of an effective discount proposition, it ticks the boxes from that viewpoint and credit should be afford to Tesco for this. It's clearly thought through and feels cohesive versus say, Netto / Sainsbury's where the price gaps were higher between Sainsbury's / Netto and they were run distinctly differently.

There is a price gap but this will fluctuate, we know Express charges different prices and has a different deal structure too. Deals in larger stores can skew the branded situation for example.

I view price in a sense of there being a gap, but like Jet in the US, they lower the price if a customer doesn't take a returns label, lower price still if they're happy to take a slower delivery option. Can be a matter of cents but still, it adds up.

In Jack's - you can't use a Clubcard, there is a condensed range and the environment isn't a 'touchy feely' as a larger Tesco may be.

Therefore the prices are slightly lower in that respect, but the gap whilst fluctuating is present. Is it something that would make customers travel from Tesco Ely to Chatters for example?

It's unlikely to have enough of an impact to force that change... However the new business that Chatteris will pick up is likely to outstrip that.

Tesco have had a huge effort on own label and a huge effort with the supply base to a) keep it under wraps and also b) get the product range and quality up to scratch.

There isn't a premium tier in the store; interesting as one would expect there would be. However, Tesco have Finest so the customer can go to a larger store if they want to trade up(?)

The proof of the pudding is in the eating, but as I say to any question around cannibalisation, do we need another discounter etc.

The customer will decide if it's viable and subsequently, successful.

Tesco have given themselves a great chance to make it work with the offer and thinking... Proof of the pudding will be in trading and I will get to see a store or two when they open in 'real life' too.

We will be producing a fuller report on the Jack's store, implications for the market and full run of imagery. Further details to follow.

From the Grocery Insight newsletter archive, first sent to subscribers on 20 September 2018. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.