Tesco, current market leader in the United Kingdom, has just launched a discounter chain called Jack’s. The launch was supported by a fanfare focused on Tesco’s promise that Tesco Jack’s would undercut the established discounters on price. I’m a little skeptical to be honest. Actually I’ll go further. I’m convinced that this isn’t about price at all. The launch of Tesco Jack’s is however a clear statement from one of the world’s largest retailers that shoppers and shopping behavior has changed. And that the superstore and hypermarket model that helped Tesco and its peers dominate grocery retail no longer fits what shoppers want today.
Tesco Jack’s – Not about price at all
I’m sure some of you are wondering what I’m on about. Surely this is ALL about price? Tesco Jack’s is a discounter after all. And Tesco have made a big play about their plans to undercut established discounters like Aldi and Lidl. But that strategy doesn’t hold up to even the slightest scrutiny. The beautiful irony is that Tesco has launched Jack’s with a much-heralded price promise but it can’t possible win on price. And hold on a minute. Isn’t that exactly what Tesco were doing across their stores anyway? If the argument was all about price, then why couldn’t Tesco just carry on what they were doing before, and promising to match Aldi and Lidl prices?
Tesco Jack’s won’t lead on price
Let’s think about it. If Tesco genuinely thought that Tesco Jack’s would win on price, that would mean that Aldi and Lidl would have to choose not to price match Tesco Jack’s. There is little chance that Lidl and Aldi will allow Jack’s to establish a better price reputation. While Jack’s is growing (they only have two stores right now, how difficult (or expensive) would it be for Aldi and Lidl to match (or even beat!) Jack’s prices in nearby stores? Pretty straightforward, I’d think.
Tesco Jack’s doesn’t make sense as a price strategy
Further, if Jack’s is required to deliver a better price, then that would mean that the rest of Tesco’s stores would be allowed to operate at higher prices. Really? Tesco will have many more Tesco stores than Jack’s stores. Is it likely that Tesco will allow the rest of their stores to become noncompetitive on price? Again, unlikely. So Tesco will likely be competing on price with the discounters in all their stores, not just the new Tesco Jack’s stores. So Jack’s can’t be about price.
Discounters don’t win on price alone
Tesco Jack’s is not a price play. That could have been done from within existing stores (as Tesco and their competitors have been doing for years). And it is unlikely to allow Tesco to raise prices in its existing stores. So, what is it? It is a recognition that ‘discounters’ are not all about price. While price is part of the appeal, it isn’t the only reason for shoppers to visit a discounter. It is convenience.
The hypermarket / superstore model is out of step with shopper economics
Tesco Jack’s is an admission that the hypermarket/superstore model is simply out of step with the needs of today’s shopper. The hypermarket/superstore model was built on the belief that the one-stop shop was the way shoppers wanted to shop, preferred to shop, and would continue to shop in the future. It is pretty much the only retail model that requires a retailer to hoover up high levels of traffic and large basket size to exist. And in the days when shoppers’ choice was limited to different retailers offering largely the same offer, shoppers duly obliged.
Shopper behavior has changed faster than retail
But today’s shopper is different. E-commerce has fractured shopping, encouraging shoppers to look to different retail channels for different categories and different shopper missions. Today’s shopper can buy a few categories from specialists, maybe pick up a couple of items on a subscription; and order some bulky items online. In the age of convenient consumption, shoppers can pick up ready meals, and top up at a convenience stores. In the world of today’s shopper, there is simply less need for the superstore or hypermarket.
If a shopper already has a number of categories covered off, the payback on a lengthy trip to an out of town superstore is lower. Simple as that. The shopper economics have changed. And a trip to a discounter, where a shopper can pick up a number of categories quickly and cheaply – that is much more in keeping with today’s shopper economics.
Shopper economics are changing shopping behavior
Not everyone will shop at discounters. And those that do won’t necessarily buy everything there. Most shoppers have categories where they appreciate quality or range that a discounter can’t deliver. In the past, that was the key reason to go to a superstore or hypermarket, and while the shopper is there, it makes sense to pick up everything else. But for many shoppers a tipping point has been reached. They can pick up some categories at a discounter, some at specialists, and the rest? Is it still worth the trip to the superstore? Maybe not.
Or maybe not as frequently. Shoppers still like or need the superstore or hypermarket. But globally they are visiting less, and when they go, they are often spending less. And for a retail format which depends on high traffic and large baskets – that is a major problem.
Are you ready for this level of change and disruption?
Tesco are moving into Jack’s in recognition that their current stores simply don’t meet the needs of today’s shoppers. This isn’t about price. This is about shopper economics and the fragmentation of the one-stop shopping basket. When viewed in this light, the success or failure of Jack’s is potentially even more critical for Tesco.
Shopping is changing, and established retailers are struggling to respond. The pain that retailers are going through is being passed on to their suppliers. The entire industry is entering uncharted territory. If you work in the industry and you don’t have a change-strategy, your business is vulnerable. Do yourself a favor and get in touch now: I’m happy to have chat to understand your situation, and share what we have learned and how we are supporting our clients in coping with the massive retail disruption we are facing. Get in touch now.
