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Key Messages

• Tesco to discontinue its Jack鈥檚 discount format
• Seven of the 13 Jack鈥檚 stores to close
• Six will be converted to Tesco stores
• Not a 鈥渇ailed venture鈥� by any means
• Format lacked scale to be a viable standalone business
• But a very valuable testing bed for other initiatives
• Key lessons learned on pricing
• Jack鈥檚 will continue as own-brand product within Booker/Budgens/Londis
• Many other Tesco strategic initiatives were born in Jack鈥檚.

In a week where fears of a massive consumer squeeze completely dominated the narrative, the decision by Tesco to close its Jack鈥檚 discount format would appear counter-intuitive. Times of accelerating hardship brought about by a multitude of economic forces (spiraling inflation, rising interest rates, huge energy cost increases etc) will surely prompt consumers to tighten their belts? In the case of grocery, surely this would mean trading down to lower priced goods and formats rather than stopping spending altogether? And surely this plays right into the hands of the discounters?

Firstly, I suspect the timing of Tesco鈥檚 announcement was purely coincidental. The decision to close Jack鈥檚 was made some time ago and was not knee-jerk in any way. By the same token, events of the last week aren鈥檛 going to prompt a hasty U-turn. Secondly, there is so much more to this than Tesco simply admitting defeat in its battle with the discounters and it would be wrong to dismiss Jack鈥檚 as a costly failure.

Jack鈥檚 鈥� the backstory

Jack's was formerly launched in 2018 by Tesco as a discount format, seemingly to rival stores such as Lidl and Aldi. It was named after Tesco鈥檚 founder, Jack Cohen. The inaugural two Jack鈥檚 stores were in Chatteris and Immingham, Lincolnshire, both of which opened on 20 September 2018. Four more opened by mid-October and within the first year of operation, a total of 10 sites were trading. The portfolio since stalled at 13 stores.

The Jack鈥檚 portfolio was established through various means. A number of locations (St Helens, Edge Hill, Liverpool, Walton, Rubery, and Castle Bromwich) were conversions of Tesco Metro stores, while Middlewich and Rawtenstall stores previously traded as Tesco superstores. Chatteris and Immingham were both legacy Tesco superstore pipeline projects that were reimagined with a smaller footprint. The Wakefield store was a former Toys 鈥楻鈥� Us, while Barnsley was a new build, built specifically as a Jack's store and located in the car park of the town's Tesco superstore.

This week, Tesco finally announced what many had been expecting 鈥� that is pulling the plug on Jack鈥檚. Six of the stores will convert to Tesco superstores while the remaining seven will close in the coming months.

鈥淒oomed to fail?鈥�

There were two main schools of thought when Tesco initially launched, but I鈥檓 not convinced either were right. The more positive school was that Tesco was 鈥渃ompleting the set鈥� of grocery channels (hypermarkets/superstores/supermarkets/c-stores/online grocery/wholesale/cash & carry) and filling the single gap in its armory (discount). Since when has grocery retailing been a tick-box exercise? Tesco joining the discount fray was certainly not a vanity exercise.

The other, more skeptical, school of thought was that Tesco was launching an all-out, direct assault on both Aldi and Lidl. Again, I鈥檓 not convinced this was necessarily true. If that were the case, it would have had to achieved huge scale (a network of 500+ stores) for the format to be viable on a standalone basis. The economics of discount retailing are completely different from mainstream food retailing and it is easy to forget that both Aldi and Lidl were loss-making for many, many years after entering the UK. As a listed company, Tesco could never sustain losses on a format for the same length of time.

A huge nationwide network of Jack鈥檚 stores was always unlikely. And ultimately, I would argue, not the end game.

The real end game

Trying to beat the discounters at their own game on their own patch was a battle Tesco was never going to win. But taking them on on its own terms and territory is an entirely different ballgame. And to my mind, the ultimate end game for Jack鈥檚.

Rather than a direct assault on the discounters, Jack鈥檚 was always likely to be an experimental format. The purpose of Jack鈥檚 was as much a testing ground for new products, concepts and thinking that could be deployed within the much wider Tesco business.

Jack鈥檚 has played an important 鈥渂ehind the scenes鈥� role in enabling Tesco to promote and deliver on its value credentials. The launch of its Aldi Price Match was born out of Jack鈥檚 and part of this wider campaign is a push towards reining in promotions to focus more on Low Everyday Prices. The Clubcard Savings campaign would also, in all likelihood, tie into this wider pricing strategy.

Jack鈥檚 also proved to be a testing ground for other operational initiatives in the wider Tesco business. For example, Jack鈥檚 contributed to the development of Tesco鈥檚 checkout free stores with the trial of its Shop Smart app that allows shoppers to scan their own purchases as they walk around the store. There are no doubt other initiatives that we are unaware of.

Nor will the Jack鈥檚 brand disappear completely. Although no stores will bear the Jack鈥檚 name going forward, it has also been introduced as an own-brand product line. The Jack鈥檚 brand will continue to be sold through Booker outlets and symbol fascias such as Budgens and Londis. Again, this will provide a significant value own brand option for their respective price architectures.

A failed venture or a highly valuable learning experience? Current performance of Tesco and the fact that it is again increasing market share despite limited physical expansion would seem to suggest the latter. And ultimately see it in good stead as any consumer squeeze takes hold.