Launching Jack’s has made Tesco a follower when it should be a leader

The discount chain’s creation shows Tesco is focusing on rivals Aldi and Lidl – and forgetting the successful strategy adopted by former boss Sir Terry Leahy, writes Chris Blackhurst

Tesco launched new discount chain Jack’s in September this year (PA)

Fourteen years ago, I interviewed Sir Terry Leahy. The then Tesco boss had just collected the Management Today Most Admired Company and Most Admired Company Leader awards.

He was the king of retail, responsible for propelling Tesco to dominance. I asked Leahy what was the pivotal moment, when Tesco began to defeat the competition?

He said it was when employees were ordered to think only Tesco, they could no longer refer to something Sainsbury’s, the market leader, had done and how they could ape it. From now on, it was just Tesco. The policy led to the Tesco Clubcard, Tesco Metro and other innovations, and, after a while, to Tesco’s hegemony.

I was thinking of this in relation to Jack’s, Tesco’s new discount chain. Perhaps I am missing something but I cannot see the logic for it. Jack’s is a distraction, a gimmick, one that will not make any difference to Tesco profits and may even end up eroding them.

Let’s believe, however, that Tesco, which went downhill towards the end of the Leahy reign, endured a slump, and is now being revitalised under Dave Lewis, really does see Jack’s as vital to its future prosperity. If so, they appear to have forgotten the Leahy lesson.

Jack’s is clearly an attempt to follow the German discounters, Aldi and Lidl. But what Lewis and his cohorts have created is confusing. It’s called Jack’s, in deference to Tesco founder Sir Jack Cohen. He was a great “pile it high, sell it cheap” operator, so for a Tesco budget label, that makes sense.

However, in a clear slug at the Germans and their sourcing, Jack’s boasts that “8 out of 10 products are British” and as backup, there are Union Jacks everywhere. Presumably, based on research showing that some consumers aren’t thrilled with Germanic produce, Tesco has decided to strike a blow for Britain. But that does not make sense, either, because more than enough shoppers are completely content with Aldi and Lidl’s wares.

The effect in a Jack’s is to feel like a declaration of war, with Aldi and Lidl firmly installed as the enemy. From the off, Tesco is fighting on someone else’s terms, not its own. And that goes against the Leahy doctrine.

Then there’s the size. Tesco is aiming to have 12 stores by Christmas. That equates to a couple of hundred thousand square feet versus a total UK footprint for Tesco of 35 million square feet. Jack’s is a blip on Tesco, so small as to be immaterial.

90

That’s the number of Jack’s stores Tesco is aiming to open eventually, according to reports

Even if Jack’s reached 90 outlets, thought to be the masterplan, that would be insignificant against Tesco’s 3,000. Why bother? Why divert so much effort and management attention on something that does not matter?

Being so tiny brings with it another problem. It’s not worth suppliers having a dedicated production line for a mere 12 stores. So Jack’s own-label goods must be Tesco own-label repackaged as Jack’s. Not only does that open up the prospect of cannibalisation, as shoppers who would otherwise purchase the Tesco item buy the same one more cheaply at Jack’s, but the Jack’s margin is being drastically slashed.

Now comes the appliance-of-science bit. Anyone who supposes Aldi and Lidl just push out stock at low prices is wrong. There is calculation in every single thing they do.

A fascinating article by advertising planning guru John Lowery (he’s advised Lidl among many others) sheds much light on how they operate. Lowery toured the first Jack’s, at Chatteris, with ex-Lidl boss, Ronny Gottschlich.

First they meet iced doughnuts – hundreds, if not thousands, of them. How many can the people of Chatteris eat? But there are no plain and chocolate doughnuts. They’re out of stock. As are the ready meals, but, says Ronny, “The fridge is on. They’re wasting electricity.”

Gottschlich produces his ruler and measures the shelf depth. There’s 94mm at the back that is empty, doing nothing. That translates into redundant metal, and cost.

All over the store there is Jack’s own label. “That means they can’t get as close to mimicking the brands that they’re trying to gain sales from.”

Out comes the stopwatch. It takes an assistant 11.2 seconds to rip off the lid of the box of cooked ham. In Lidl, the perforations are deeper and the packaging comes away more easily, in a maximum of 5.3 seconds. Which means the worker can get on with another task.

Same with the bleach bottles. In Jack’s, the labels all face the front. Someone has arranged them like that, but such decorative precision takes time. In Lidl, they’re not, “Because it’s a waste of man-hours. The shoppers know it’s bleach. You could be doing something else… like manning the tills.”

There are two sizes of trollies. “Why? It increases costs.”

Gottschlich discovers that four out of five staff at the Jack’s previously worked in a Tesco. “There you go. They’ve learned to turn the packs round at Tesco. It will take months to knock that kind of behaviour out of them.”

In obsessing about Aldi and Lidl, in creating Jack’s, Tesco is ceasing to be Tesco. And forgetting the instruction of its former brilliant chief.

Chris Blackhurst is a former editor of The Independent, and director of C|T|F Partners, the campaigns, strategic, crisis and reputational communications advisory firm