What went wrong for Tesco’s budget chain Jack’s?

Tesco launched its discount chain Jack’s in 2018 to much fanfare and, in some cases, dismay. The new brand was meant to offer a more direct rival to the German discounters Aldi and Lidl, using its size and scale to offer a more “bespoke” range and experience.

The new brand’s intention was to be the “cheapest in town”, according to global CEO at the time, Dave Lewis.

“The scale of Tesco and the lower operating cost of Jack’s is what allows us to be cheaper,” he said. Tesco planned to open Jack’s stores across the UK, starting with 10 to 15 in year one.

But Jack’s never made it beyond store 13, and yesterday evening Tesco confirmed it was pulling the plug on the chain once and for all.

The UK’s biggest supermarket said it needed to “continuously look” at how to run its business “as simply and efficiently as possible, so we can re-invest in the things that add most value for customers”.

Evidently, Jack’s didn’t make the cut for continued investment, though branded products from its range will still be made available in independent convenience stores via its wholesale business Booker.

The usual questions to ask when a brand fails is why, and what went wrong. But in Jack’s case, it may well be the proposition was doomed to fail from the start.

Indeed, retail experts Richard Lim and Richard Hyman are not shocked by the news.

The best thing Tesco can do is put all its efforts into being as much like Tesco as it possibly can.

Richard Hyman, Richard Talks Retail

“I think it’s surprising it’s taken so long and even more surprising they did it in the first place,” says Hyman, founder of Richard Talks Retail. “Tesco isn’t set up to be like Aldi any more than Aldi is set up to be like Tesco.”

Aldi sells around a 20th of the products Tesco sells, Hyman estimates, and operates from smaller stores on tighter margins.

“They’re very complex and just opening stores that are vaguely similar in size is not really going to move the dial,” he adds. “The writing was on the wall from the very beginning. In my opinion it was not good strategic thinking.”

Lim, CEO at Retail Economics, adds that Tesco’s lack of “commitment” towards scaling the proposition was a major factor in its failure.

“They’d have had to scale in order to take on the likes of Aldi and Lidl. Jack’s didn’t have the scale to be able to take that on. So it was always just going to be an experiment,” he says.

A branding failure

When Jack’s launched three years ago, Marketing Week columnist Mark Ritson said Tesco had made a “foolish move”, predicting the chain would fail.

“[Tesco] has forgotten one of the core principles of branding – to thine own self be true,” he wrote. “Tesco cannot possibly match Aldi or Lidl. And while it wastes time and resources and people and money on this futile strategy, the focus on Tesco being Tesco will be lost.”

Similarly, Hyman argues that “being distracted by trying to be what they’re not” was a bad strategy for the grocer.

“You’ve got to believe in who you are or your customers won’t believe in who you are,” he says. “The best thing Tesco can do is put all its efforts into being as much like Tesco as it possibly can.”

Surprised that Tesco’s strategy to combat the rise of discounters was to launch a spin off discount brand, Lim says he had expected Tesco to try to leverage the differentiation it already had.

“A better route would have been to try to leverage the brand and create an effective point of differentiation from the discounters,” he says.

Yet, as Lim points out, Tesco has performed increasingly well over the past three years. In its third quarter and Christmas trading statement, the business claimed to have reached its highest market share in four years. It grew share both in stores and online and marked 22 consecutive periods of customer switching gains.

Tesco should have been focusing on its strengths rather than trying to replicate the discount model.

Richard Lim, Retail Economics

In yesterday’s statement, Tesco’s UK CEO implied that some of that growth can be attributed to the “huge amount” the business learned through running Jack’s stores. The experience helped Tesco become “more competitive, more efficient, and strengthened our value proposition”, Jason Tarry said. This includes through the launch of the ‘Aldi Price Match’ as well as its ‘Fresh 5′ fruit and veg discount offer.

“In turn, this has enabled us to consistently attract new customers to Tesco from our competitors over the last two years and we know they increasingly recognise the value they can find at Tesco,” he added.

However, questioning how much Tesco learned from Jack’s that couldn’t have been learned another way, Hyman says: “They could have visited a few Aldis instead. It would have been cheaper and easier. It’s a very expensive way of learning and ultimately it was a mistake.”

Retail Economics’ Lim adds that if Jack’s had in fact been a successful experiment for Tesco, there would be no reason to shut down the brand.

“Reading between the lines, that wasn’t the case. So they’ve decided to cut their losses where it is,” he says. “It should receive some kind of praise for trying something new, testing and measuring it and learning as it goes along, [but] I don’t think it was the right experiment to do.”

He adds that there are more lucrative opportunities for grocers than discounting at present, such as in rapid delivery and the takeaway market.

“Ultimately, Jack’s appears to have been a mistake. I don’t think [Tesco] should have tried to compete on a like-for-like basis with the discounters. It would have been better putting resource, effort and attention on the core business,” Lim concludes.

“It should have been focusing on its strengths rather than trying to replicate the discount model.”

Indeed, that opinion appears to be where Tesco has now itself landed, as Tarry promises the retailer will now focus on its “core business” moving forward.

“With the learnings from Jack’s now applied, the time is right to focus on ensuring we continue to deliver the best possible value for customers in our core business,” he said.

Source Article