Tesco takes on Aldi and Lidl as first Jack's store unveiled

Tesco (Frankfurt: 852647 - news) has unveiled its new concept store Jack's, as it seeks a slice of the growth achieved by budget grocery chains Aldi and Lidl.

Britain's biggest retailer will open its first two Jack's stores tomorrow in Chatteris, Cambridgeshire, and Immingham, North East Lincolnshire - Tesco sites that were closed down four years ago.

As part of a project more than two years in the planning, up to 15 stores will open over the next 12 months, with five existing Tesco properties being re-purposed and the remainder being new outlets.

Most products will be Jack's own brand and the chain will have 2,600 product lines, compared to tens of thousands in most Tesco stores. Around 1,800 products will be under the Jack's brand.

Why is Tesco launching Jack's?

Jack's - a salute to Tesco's founder Jack Cohen - aims to be a no-frills discount brand to challenge the meteoric rise in market share enjoyed by Aldi and Lidl since the financial crisis.

The latest industry figures produced by Kantar Worldpanel show market share growth for all the major grocery brands in the UK - a consequence of essential spending holding up well amid a sweltering summer.

But the data, covering the 12 weeks to 9 September, showed Tesco's slice of the overall action was 0.5% down on the same period last year.

In contrast, Aldi and Lidl had grown their respective market shares to 7.6% and 5.5% respectively. Tesco remains the biggest player by some margin on 27.4%.

However, its dominance is also threatened by another big deal as 'Big Four' rivals Sainsbury (Amsterdam: SJ6.AS - news) 's and Asda plan a £15bn merger that would make a combined company the biggest supermarket chain by share.

Jack's 'cheaper to run' than Tesco stores

Speaking at the launch of the store in Chatteris, Tesco chief executive Dave Lewis said he was interested in "what our customers want" and providing “local provenance" at "a very affordable price.”

He insisted he was not worried about undercutting existing Tesco stores.

“Because of that range and the simplicity, how we run the store is cheaper to run,” he said. “What we’ve done is pass that benefit on to our customers.”

“If there is an offer that has an appeal in the marketplace it’s important that we, as Tesco, through Jacks, give that to the local market.”

Tesco said prices at the Jack's stores will be kept down through lower operating costs, adding that 80% of goods would be sourced from within the UK.

That would help shield prices from the Brexit-hit pound, which has made imports more expensive.

It emerged from job adverts in July that the UK's largest retailer was to launch a " new retail format " but it refused to give further information until now.

"Jack Cohen championed value for customers and changed the face of British shopping," Mr Lewis said.

"He's an inspiration for all of us and that same spirit still drives Tesco now."

Mr Lewis' move towards the no-frills side of the market is likely to have been tipped by Tesco's purchase of wholesaler Booker and its " strategic alliance " with France's Carrefour (Swiss: CA.SW - news) - both aimed at bringing down costs and driving value for customers.

Competition at the top of the UK supermarket sector has continued to intensify since the initial price wars to attract customers and protect market shares in the stampede to the discounters.

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Neil Wilson, chief market analyst at Markets.com, said of the Jack's launch: "I think having a separate brand is really interesting as it allows it to offer different products at different price points without affecting its core Tesco brand.

"It lets Tesco take the fight to the discounters on a level playing field - no need to dilute margins at core Tesco, just offer something different to the more value-conscious customers.

"Question is can it do it as cheap - Lidl/Aldi operate with limited choice and the temptation is for Tesco to offer more."

He added: "Worth (Shenzhen: 300483.SZ - news) remembering this is also to do with boosting a number of poor-performing stores rather than shuttering them - not sure if this really will result in a significant recapturing of market share from discounters."