The pressures in the food retailing sector – especially for the ‘legacy’ operators – are well known and continue to build. The rise of the discounters (see the last post), the continuing growth of the internet and the consumer demand for convenience all continue to ramp up the pressure.

In recent weeks two examples of a fight-back have emerged, though neither is certain to survive or to have the desired effect.

Tesco have been righting their ship for some years now; a process of range reduction, store closures and mothballing and the focus on core business and customers, including on ‘farm brands’.  The merger with Booker has added another dimension.

But a couple of weeks ago they upped the stakes by opening their long-rumoured discount store.  Jack’s, in a nod to Jack Cohen and his ‘pile it high, sell it cheap’ mantra and the company’s origins, opened a couple of stores with up to 15 promised soon. It is too early to see how this will develop (and 15 stores is a pinprick on the scale of Aldi and Lidl) both because the roll out is so experimental (reasonably) and customer reaction remains in the curious and honeymoon period.

A few things strike me from afar – and I have not yet been down to see a Jack’s in operation.  The emphasis on Jack’s brands, as opposed to using the Tesco farm brands, slightly worries me.  It seems to be placing a distance from the core brand – which I understand – but will it work given the offer in Aldi and Lidl?  The store opening pattern seems also rather random, and I wonder about the logistics and how this will work, without being cost additional.  The cost reductions in store development and operations sound reasonable but will they last and deliver what customers want?

It will be interesting to see, and to watch how this develops over time.  Fight back or dead end?

The second slower challenger in the fight-back is the ongoing CMA consideration of the Asda – Sainsbury merger.  As predicted a full investigation will take place.  The initial findings pointed to a huge overlap (430+ locations) where competition would be reduced.  The traditional remedy for this would be a sell-off (to whom?) but the scale of this would likely kill the deal.

Yet, a closer look points to how this is an extreme case.  The methodology used is the traditional one of separate markets.  The full investigation is likely to consider much more carefully market definitions and overlaps.  The exclusion of the discounters from local competition is perverse as is the treatment of convenience stores.  The market has changed and I suspect the CMA will have to reflect this in renewed calculations. Claiming the discounters are not part of the core grocery market is simply absurd now – Jack’s or no Jack’s.

If the CMA do rethink and reanalyse, then the number of overlaps is likely to fall.  How much is not clear, as there will undoubtedly still be some overlaps.  The big question is whether the final ‘sell-off’ number is large enough to scupper the deal?  We have to wait and see.  I remain unconvinced by the lack of any compelling reason for the merger in business and customer terms, beyond scale, and the plans post-merger remain opaque.  But if the CMA does look at the modern food retail market and not a partial construction, then the merger may have moved closer, despite the full investigation headlines and the suggestions of a problem for the merger.