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When Tesco unveiled its discount chain Jack’s a year ago, hopes were high that it could pose a serious threat to Aldi and Lidl. A year on, fewer stores than expected have opened and recent job losses have raised questions about its success.
At the media circus that greeted the first store in the small Cambridgeshire town of Chatteris in September 2018, the Tesco boss, Dave Lewis, said 10-15 Jack’s stores would open within six months. But ahead of Friday’s first anniversary, the figure is 10 and last month there were staff cuts at the store in Immingham, Lincolnshire, one of the first to open. At an investor event in June, Tesco revealed Jack’s had generated sales of £24m – which experts think is disappointing.
“That is very small given the store footprints – we would look to get double that and still be disappointed,” said an executive at a rival supermarket chain. “It’s an interesting experiment, but based on those sales figures Jack’s is probably costing more than it is making, and I’d question what they are really learning from it.”
Unlike Tesco’s disastrous attempt to crack the US with Fresh & Easy – a misadventure that cost the firm nearly £2bn – Lewis has not bet the farm on Jack’s, with an initial budget of £20m to £25m. He also set up a graceful exit route by billing the project as part of Tesco’s centenary celebrations (it is named after Jack Cohen, the market trader who founded the UK’s biggest supermarket in 1919).
The Chatteris and Immingham stores were empty units mothballed in the wake of Tesco’s 2014 accounting scandal, while other Jack’s are revamped problem stores within its 3,400-strong UK estate. The curiosities are Jack’s built within Tesco supermarket car parks, not least given the concerns voiced by analysts last year that the new brand risked drawing shoppers away from Tesco stores.
On Friday, the car park in Chatteris, which Jack’s shares with Poundstretcher, is filling up. Kayleigh Ford, shopping with her husband Tel and the youngest of her three children, has decided to do her monthly shop at a discounter for the first time after seeing Aldi ads that claim its stores are much cheaper than Tesco.
“We usually go to Tesco but decided to come here today because we are trying to be more cost-effective,” said Ford. “We got most of our shopping at Aldi and have come to Jack’s to get the tins.” Ford usually spent £350 on her monthly shop but reckoned splitting it between the two stores had resulted in a saving of more than £100.
Another shopper, Nancy Borell, says she has switched from the nearby Aldi to Jack’s: “I come here every week because it is local, cheap and good quality. You can more or less get everything you want.” Her father, Mick, has even succumbed to one of its WIGIG (when it’s gone it’s gone) deals and is clutching a £12 Daewoo kettle. “My only gripe is the tills,” she adds. “They sling it at you.”
But time has not stood still in a fiercely competitive UK grocery market where the German discounters are both opening roughly a store a week. The big four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – have lost a percentage point of market share over the past 12 months, according to research firm Kantar. That equates to almost £270m and nearly all those sales have ended up in the tills of the discounters, with Aldi expected to report strong figures on Monday.
With or without Jack’s – which is cheaper to operate because the stores sell 2,600 products rather than the 25,000 found in a typical large Tesco – Lewis needs to find a way to cash in on the discount zeitgeist. This year he has already eliminated more than 8,000 jobs in the core Tesco estate by closing fresh food counters and making changes in its high-street Tesco Metros as part of his quest to grow profits at the UK’s biggest retailer.
Tesco, Asda and Sainsbury’s have all experimented with discount brands in the past without success. Most recently Sainsbury’s axed its partnership with the low-cost retailer Netto, citing the property costs which to date have not been an issue for Tesco, given its use of excess space.
Bruno Monteyne, an analyst at Bernstein, said Jack’s was a research and development format that was not material to Tesco’s finances at this stage: “If it works … they will tell us. If it doesn’t, it probably will be closed.”
The 10th Jack’s opened in Walton in Liverpool last month and recruitment has already begun for another three stores – in Liverpool, Wakefield and Sheffield – which will open before Christmas. Tesco said the customer response had been “very positive, with customers recognising the great value and quality that Jack’s offers”. The company said in a statement: “We are very pleased with the progress that Jack’s is making, as well as the lessons that we are learning from a low-cost operating model.”
Bryan Roberts, an analyst at TCC Global, thinks more time is needed before the success or otherwise of Jack’s can be judged. “I don’t think Jack’s has set the world on fire, but it’s not a disaster either. You need to give something like this breathing space. I’m still relatively impressed by it as a concept – what is missing is scale and momentum.”
Packing his shopping into the boot of his car, Phil Miller feels Jack’s has turned a corner in Chatteris, where many are in low-paid agricultural work. “When Jack’s first opened it didn’t seem to take off and if you saw three or four people in there you were lucky. It’s busier now. The prices are very nearly the same [as Aldi] and what I can’t get from Jack’s I get from there. If it’s 39p down there it’s 40p here – there’s a penny in it.”
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