“We have learnt a huge amount from Jack’s,” said Jason Tarry, chief executive of Tesco UK and Ireland, as he pulled the plug on the group’s experiment in running an Aldi copycat format. One lesson is probably an old one: pure discounting is best left to specialists.
Trying to run a limited-range discount chain is hard when your core business is, and always will be, mainstream grocery retailing. Sainsbury’s had a go a few years back in partnership with Danish group Netto and also got nowhere. In Tesco’s case, only 13 Jack’s outlets appeared, so no more than the 10-15 billed as “an initial phase” by former chief executive Dave Lewis back in 2018. It suggests the case for expanding Jack’s never got close to borderline.
One can see why boards of big supermarket chains are sometimes overcome by the urge to try to play Aldi and Lidl at their own game. The rise of the discounters is the most significant development in UK grocery retailing over the past 25 years. What the big players tend to overlook, though, is that it took Aldi and Lidl more than a decade to become a serious fighting force.
The former launched here in 1990, and the latter in 1994, but it was only after the turn of the century that the privately owned German duo became more than an irritant to the leading chains. Their biggest growth came after the helpful plunge in commercial property prices that followed the financial crash of 2008. Such investment horizons tend to be far too long for quoted companies.
The smarter tactic is the one that Tesco and Sainsbury’s have increasingly adopted: just try to match Aldi’s prices on basic goods, especially fresh food, and champion the fact. It is jarring to see Tesco, the UK’s biggest beast, admit, in effect, that a smaller competitor is the real price-setter, but customers get the message.
If adventures such as Jack’s were ever going to work, the moment was a couple of decades ago, before Aldi and Lidl got into their stride. Yes, best to stick to the day job.
Cost of living squeeze tightens on savers
Here’s an unhelpful straw in the economic wind for Rishi Sunak. Consumers saved less and borrowed more than usual in December, according to the Bank of England’s figures. And savings habits enforced involuntarily during lockdown now seem to have reversed entirely. Household deposits in banks are back at pre-pandemic levels.
These figures look suspiciously like the arrival of the cost-of-living squeeze, even before April’s hike in energy bills adds to the pressure. The actual announcement of the new price cap on energy bills comes next Monday, which is the real trigger for the chancellor to reveal what he intends to do to soften the shock. Remember that it is virtually nailed-on that the cap will rise from its current level of £1,277 for an average annual dual-fuel bill to about £2,000.
The latest whisper in the energy supply sector is that Sunak will opt for a two-part approach. First, an extension of the warm homes discount scheme that is available to qualifying low-income households. Second, a measure that applies to everyone: the removal of a portion of the increase in bills (perhaps as much as £200) by deferring the hit to future years.
The latter element would be the controversial one since nobody knows when wholesale gas prices will fall. The deferral approach carries a strong whiff of hopeful thinking. But one can see why the chancellor might be tempted: if he’s not going to budge on April’s national insurance increase, he needs to find something to grab attention. The squeeze is on.
Paltry fines will hardly dent auditor profits
Jon Holt, chief executive of KPMG in the UK, says the auditing and advisory firm will “deal with and learn from our legacy issues”. In the meantime, the firm’s 571 partners can enjoy average pay packets of £688,000 for 2021, an increase of a fifth on the previous year.
No doubt Holt is sincere about tackling those awkward legacy issues, but pre-tax profits of £436m, pumped up by advisory work on clients’ deals, puts into context the size of fines dished out for failures in the auditing division.
Last year’s lowlight at KPMG was a £13m penalty in a long-running case related to the sale of the bedmaker Silentnight to a private equity group in 2011. The sum was a near-record fine from the Financial Reporting Council, but it barely touches the sides.
