As Aldi and Lidl continue to soar like a SpaceX rocket, does it make sense for grocery market leader Tesco to launch its own value fascia?
There’s speculation that Britain’s biggest retailer may do just that as it seeks to counter the food retail insurgents.
It’s obvious why such an initiative might be considered.
By last September, £1 in every £8 spent in supermarkets was going through the tills of the two discount specialists.
For Tesco, which at its peak raked in the same proportion of spend across the whole of UK retail, the desire to win trade back from the discounters is understandable.
But a new format is probably not the way to do that.
Certainly, the impending merger of Tesco with wholesaler and convenience retail group Booker brings new opportunities through greater scale, buying power and a property portfolio that could be played with by repurposing underperforming space.
However, Tesco would nevertheless be a late entrant to the party, faced with the prospect of building a new value business from the ground up. Success would not be a done deal.
Sainsbury’s attempts to carve itself a slice of the value grocery pie by teaming up with Netto came to naught – and that was a partnership with an acknowledged strong player rather than creating a new business in-house.
When the joint venture was abandoned in 2016, Sainsbury’s chief executive Mike Coupe said: “To be successful over the long term, Netto would need to grow at pace and scale, requiring significant investment and the rapid expansion of the store estate in a challenging property market.”
Surely not much has changed in the interim period – except perhaps that Aldi and Lidl have enhanced their reputation for quality as well as low prices, another consideration that any new competitor venture would also need to address.
“It could do without risking confusion in customers’ minds about which of its shops offer the best prices and whether they’re mugs for spending at the core chain”
The bigger issue for Tesco though is that a value fascia could undermine the core business’ credentials on that front.
Tesco was founded on value. It was the legendary Jack Cohen who became synonymous with the phrase ‘pile it high and sell it cheap’.
And when it lost sight of the importance of great prices during Phil Clarke’s tenure, trouble was not far behind.
Since then, Tesco has made great progress in restoring its reputation for value, through initiatives such as the launch of the Farm Brands range and Brand Guarantee, which gives shoppers an instant discount at the till if their branded shop would have been cheaper at any of its big four rivals.
It could do without risking confusion in customers’ minds about which of its shops offer the best prices and whether they’re mugs for spending at the core chain.
Amazon’s jobs cull
Directors of traditional retailers might be forgiven, waking to news this week about Amazon head office job cuts, for thinking that the etail titan is subject to the same pressures as they are.
Amazon’s jobs cull probably reflects the pace of technological change and its agility to switch focus into emerging growth areas as much as it does typical business concerns such as efficiency.
The Amazon employment stats quoted by The Seattle Times, Amazon’s hometown newspaper which broke the jobs story, are staggering.
From 5,000 Seattle-based employees in 2010, Amazon has grown to 40,000.
Excluding warehouses, Amazon had 12,500 open jobs this week. And that’s before it opens a second HQ where another 50,000 will be brought on board.
That scale throws into stark relief the continuing challenge posed by Amazon and similar companies to established retail models.
As the adoption of digital technology transforms consumer behaviour, all retailers will need to create more Amazon-style jobs if they hope to keep pace.