Hit or miss? Analyzing Tesco’s discounter move
Talk about good timing. On Wednesday morning last week, Tesco announced to the world its response to the rise and rise of the discounters.
At the same time, the Competition and Markets Authority (CMA) said it will now start its review and investigation into the proposed Sainsbury’s and Asda merger. A stark reminder that Tesco’s dominance in the UK food retail market is now under real threat from every direction.
It is launching its own cut-price chain, Jack’s, named after founder Jack Cohen, with the first store opening in the small Cambridgeshire town of Chatteris.
The plan is to open 10-15 further stores over the next six months as it squares up to Aldi and Lidl, the two German discounters who have taken the UK by storm.
Unlike its rivals, it will be offering an app allowing smartphone-wielding customers to scan products and then a barcode at checkout to arrange payment. This builds on such offerings as Tesco Pay+ and an internal trial of its Scan Pay Go app. Jack’s also features a combination of self-checkouts and manned tills.
Retail analyst Natalie Berg says the launch of Jack’s is an admission that the likes of Aldi and Lidl have fundamentally changed the way we shop and there’s no sign of them abating. Tesco couldn’t pay the discounters a higher compliment.
Over the years, it has attempted to stem the discounters’ growth through endless price cuts, Berg observes. It has reduced the number of promotions in a bid for more honest, consistent pricing, taking a leaf from the discounters’ book. It has launched its own discount brands and even created dedicated pound zones in-store.
The reality is that none of this has stopped shoppers from defecting to the budget supermarkets. Aldi and Lidl’s combined market share has grown by 80 percent over the past five years. Tesco has exhausted all its tactics – launching Jack’s is very much a last resort, Berg says.
For Catherine Shuttleworth, CEO and Founder of Savvy, there has never been a more important moment for retailers to be clear about their strategic direction. The Jack’s and CMA announcements bring into sharp focus the unstoppable and seismic shift in UK grocery and the reason why staying the same is no longer an option.
At a postcode level, competition has never been so fierce but, as demonstrated by the launch of Jack’s, new entrants into the market still see sales opportunities. Whilst the space race of old might be over, the market share race is still going strong.
And what is the competition? It used to be just the big four, but no longer. It isn’t just Aldi and Lidl but B&M, Poundland, Farmfoods, to name but three, who are taking a share of the weekly shopping bill.
And last but definitely not least, there’s Amazon. Its swoop for Whole Foods brought the e-commerce giant closer to breaking into the UK grocery market and it is now opening tech-centric (computer vision, sensor fusion, deep learning etc) Amazon Go cashier-less stores in the US.
Can Jack’s triumph in these hyper-competitive times? At best, Tesco will win back some of its more price-conscious shoppers, Natalie Berg argues. At worst, Jack’s becomes another costly distraction. Either way, Aldi and Lidl aren’t going anywhere. This is about co-existing with the discounters, not stamping them out.
20 February 2024
19 February 2024
19 February 2024