Business

Tesco's new discount chain Jack's takes on Aldi and Lidl

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Media captionTesco says Jack's prices will be lower than Lidl and Aldi

Tesco has unveiled its new discount chain called Jack's that aims to tackle the rising threat posed by German rivals Aldi and Lidl.

The first store is in a mothballed former Tesco store in Chatteris, Cambridgeshire.

Another outlet in Immingham, Lincolnshire also opens on Thursday.

Between 10 and 15 stores are planned for new locations, next to existing Tesco stores, and a small number of converted Tesco stores.

Chief executive Dave Lewis claimed that Jack's - named after Tesco founder Sir Jack Cohen - would be cheaper than Aldi or Lidl.

"We have been thinking about what customers want, and bringing it to them in the most cost-effective, value-orientated way possible," he told the BBC. "The objective is to be the lowest cost for customers."

Jack's stores will sell 2,600 products - far fewer than the 35,000 carried by a Tesco supermarket - with 1,800 branded "Jack's".

By comparison, Aldi sells around 1,800 products. It is understood that Aldi will review Jack's prices where the stores open and adjust them if required.

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Fraser McKevitt at Kantar Worldpanel said Jack's would have little immediate impact on its German rivals: "There are already over 1,300 Aldi and Lidl stores across the country and the two have a combined market share of 13.1%, so Jack's is clearly playing a longer-term game.

Like its two rivals, Jack's will also have a central aisle offering food and non-food bargains called WIGIG - When It's Gone It's Gone.

Jack's will also have a Fresh Five fruit and veg offer that echoes Aldi's Super Six.

Nicholas Carroll, senior retail analyst at Mintel, said: "Aldi and Lidl can take much solace in that their new rival takes much inspiration from their own stores. Jack's is a format that has been built to compete with the stores which have disrupted much of Tesco's core business over the past decade."

Mintel expected the food discounter sector to growth by almost 12% this year. "Both Aldi and Lidl have plans for 250 to 300 new stores in the UK in the medium term, highlighting that there is still much room for Tesco to make its dent in the market," Mr Carroll said.

"Whether Tesco can make the numbers add up, and prices stack up for consumers will be the real test on whether this is a viable format to slow Aldi and Lidl's growth."

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Image caption Tesco chief executive Dave Lewis at the new Jack's store in Cambridgeshire

Tesco is investing between £20m and £25m in Jack's, which Mr Lewis described as "very, very modest".

Although Jack's is "part of the Tesco family", Lawrence Harvey, the former Aldi UK executive in charge of Jack's, said it will not issue or accept Clubcard points. Neither will there be any online operation.

As well as the discounters, Tesco faced being overtaken as the UK's biggest supermarket chain by a combined Sainsbury's and Asda.

The £15bn merger will be the subject of an in-depth competition investigation, the Competition and Markets Authority announced on Wednesday.

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Media captionJack's: Will people switch to Tesco's new chain?

Mr Lewis said that beyond the initial 10 to 15 stores, more could follow, but that was "not a calculation we're currently making".

Five will be rebranded Metro stores, which are larger than an Tesco Express but smaller than its supermarkets.

The Tesco boss said was not worried about the new chain cannibalising sales from Tesco outlets. It plans to build a Jack's in the car park of a Tesco Extra to see how consumers shop.

Only two will come from stores mothballed in 2014-15 when Mr Lewis took over as chief executive, while the remainder will be new.


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Inside Jack's

The smell of freshly baked bread is the first thing you notice walking into the Jack's store in Chatteris, writes Dearbail Jordan.

Like Lidl, the bakery is the first thing you see in Jack's. But unlike shelves in the German chain, which often appear to have been stacked by the Tasmanian Devil, Jack's is neater, brighter and clearer - more like an Aldi.

That's probably no coincidence given that the person in charge of Jack's is a former Aldi boss.

He has tried to find savings wherever possible: the freezers in Jack's cost 10% less than those used in Tesco, while flooring is polished concrete rather than tiles.

Jack's also hopes to do things more efficiently. Aisles, for example, are wide enough so if the shop is busy workers still have room to replenish shelves.

There will be just 20 to 25 workers at a Jack's store, which will feature more self-service tills than staffed checkouts.

Unlike Aldi and Lidl, Jack's staff can also wear their own clothes along with a branded apron and badge.

There are differences and similarities between Jack's and its German rivals - the question now is whether Tesco can make it work.

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