Will Jack´s strike back? Does Tesco know Discount?

Artikel vom 07.08.2018

In 2012, we have published on the internet page of our Institute for Simplicity an article about Lufthansa´s plans to launch a discount airline. Our doubts were justified. Eurowings is not a discounter. Discounters are disruptive. Eurowings is just another airline, only low cost with low quality and more complexity than before.

Now, Tesco is planning to launch a Discount concept called „Jack´s“ to fight ALDI and Lidl. Already this fall 60 stores are going to be opened with sales areas of 1000 to 2700 sqm. We agree with Marcel Corstjen who calls Tesco „desperate“.

What we think:

  1. ALDI started operating in the UK in 1990. Today, ALDI´s and Lidl´s combined market share is somewhere at 9 %. What took Tesco´s management and Board of Directors so long to consider what the response of the market leader could be? Especially Tesco´s Board of Directors was obviously deeply asleep for decades although the business model as well as the success of discount was easy to observe in several countries.
  2. Will the same retail experts who have caused Tesco´s troubles of the recent past be now the ones to establish a retail format which is so different from any traditional supermarket business? Dieter Brandes used to say, ALDI is more similar to Toyota than to retailers like Walmart or Tesco.
  3. The experience shows that multi-format retailers are not able to run discounters. Carrefour failed, Metro failed. Jeronimo Martins and Biedronka is the example which proofs the rule. Luckily Poland is far away from Portugal. Daily intervention is not easy. In the early years of Biedronka Dieter Brandes helped to implement fundamental principles and processes of a Discounter.
  4. A discounter says „No“ to many standards of the industry. A very restrictive  limited assortment is one of these „No´s“. One can have doubts whether Tesco is able to decide to run the discount stores with only – let´s say – 800 items in stores of 500 sqm.
  5. A discounter has a very special corporate culture. It is about extreme cost-consciousness, strong principles and procedures how for example to make decisions in regards to assortment and prices. It´s about delegation and believing in small entities instead of economies of scale.
  6. Finally, it is probably not surprising to hear that famous strategy consultants are hired to develop the new discount concept. Will this ensure success? What is Tesco´s management doing when core responsibilities are delegated to consultants? Just an example: BIM, today the largest grocery chain in Turkey with today almost 6500 stores and net sales of 6B USD, has never used any consultants