Tesco’s tectonic shift

Jack Cohen brought supermarket retailing to Britain
The top supermarket is launching its own version of Aldi and Lidl – but cashing in on the fast-growing discount sector won’t be easy. Marina Gerner reports.

“Tesco and its rival supermarket groups have a problem,” says James Moore in The Independent. “There is a marked lack of anything resembling growth out there.” Tesco and Co are having trouble getting their sales growth to exceed the pace of food-price inflation. In the meantime, however, German discounters Aldi and Lidl continue to “grow like Japanese knotweed”. Not only are people looking for lower prices, they also prefer mid-sized supermarkets where they can shop little and often. No wonder, then, that Tesco has decided it wants a piece of the action in the cheap-and-cheerful segment of the market.
Enter Jack’s, Tesco’s new discount chain. It’s named after its no-nonsense founder, Jack Cohen, who established himself as a market-stall holder in London’s East End in 1919, paving the way for the Tesco of today. Cohen was an enterprising market trader who brought modern supermarket retailing to post-war Britain, says Zoe Wood in The Observer.
The arrival of Jack’s is one of “several tectonic shifts” in Britain’s ultra-competitive grocery market, says Chris Johnston on BBC Online. Sainsbury’s, the second-largest chain, has announced a merger with the struggling Walmart-owned Asda (the competition watchdog has yet to approve). Meanwhile, Jack’s is “one of the most significant moves” by a British mainstream supermarket chain in years. It also illustrates how far Tesco has come since its accounting crisis of 2014.
What could possibly go wrong?
The risk is that Tesco will have to operate a very different business model and run it alongside the existing one. Other British companies have tried that and come a cropper, as Moore points out. British Airways tried to take on EasyJet with a low-cost airline called Go. “That didn’t last long.” Neither did Sainsbury’s partnership with Denmark’s Netto to set up a discounter. On the plus side, Aldi and Lidl’s ability to price their products as cheaply as they do rests on their ability to buy their small range of products in vast quantities. Tesco certainly has the buying power to “replicate that formula” given its ownership of Booker and buying alliance with French giant Carrefour.
Tesco is perhaps unique in having “the scale and power to develop such an innovation”, agrees Bruno Monteyne at Bernstein on the BBC. But Jack’s will only prevail if run at arm’s length from the mother ship. “The reason why discounters succeed is not just because they are cheap,” says Bryan Roberts, an analyst at TCC Global in The Observer. Their food is high quality and they make it simple to shop. “You don’t have to choose between 15 types of ketchup, you choose between two.” If Tesco tries to run it alongside the main brand “and there’s overlap, shoppers will notice”.
Insurers bulk up: Marsh buys JLT
For an industry “supposedly good at predicting major events, the London insurance market woefully failed to see this one coming”, says Jim Armitage in the Evening Standard. New York’s Marsh & McLennan, the insurance broker and consultancy, is buying its smaller rival, Britain’s Jardine Lloyd Thompson, for £4.3bn.
The deal will combine Marsh, the world’s biggest insurance broker by revenue, with the number seven, say Cat Rutter Pooley and Oliver Ralph in the Financial Times. JLT’s top executives are in line for a £100m windfall. And JLT shareholders will receive £19.15 a share in cash, a 38% premium on the recent average price of JLT’s shares.
“You can’t blame the market for its surprise,” says Armitage. JLT’s “tough-talking” chief Dominic Burke had “long expounded on the joys of independence”. And one might reasonably ask why Marsh wants to spend £5bn effectively adding to what it does already. “The acquisition is about one word – growth,” Marsh’s CEO Dan Glaser told the FT.
The deal would give Marsh a bigger position in Asia and Latin America and in reinsurance, while the combination would also help JLT expand its presence in America.
Marsh generates half its insurance revenue in the US, whereas three-quarters of the revenue in JLT’s risk and insurance segment comes from other parts of the globe, notes Aimee Donnellan on Breakingviews. Finally, JLT is also “growing at double-digit rates” in America, thereby “potentially posing a threat to its larger rival”.


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