Britain's Tesco takes on discount rivals with launch of Jack's

By James Davey

CHATTERIS, England (Reuters) - British supermarket group Tesco has laid down the gauntlet to German discounters Aldi and Lidl by launching what it said would be the cheapest store in town.

CEO Dave Lewis unveiled Tesco's new Jack's chain on Wednesday, saying the discount stores would sell 2,600 products, including 1,800 Jack's-branded items.

The first two Jack's stores will open to shoppers on Thursday, with another 10-15 following in 2019 as Tesco seeks to compete better with the German upstarts whose limited-range stores have won over increasing numbers of British shoppers since the economic crisis hit in 2008.

Together Aldi and Lidl now have a combined 13.1 percent market share, chipping away at market leader Tesco and its three biggest rivals Sainsbury's, Asda and Morrisons.

Jack's is named after Jack Cohen, who in 1919 founded the business that became Tesco, and is a significant move by Lewis, who has rebuilt Tesco after a 2014 accounting scandal capped a dramatic downturn in trading.

It also follows Tesco's purchase of wholesaler Booker earlier this year for nearly 4 billion pounds ($5.27 billion) to expand into supplying caterers and local shops.

The first two Jack's stores are located in Chatteris and Immingham, both in eastern England, and media reports have said that up to 60 existing outlets could be converted.

"The intention is for us to be cheapest in town," Lewis said.

In addition to the Jack's brand, Jack's will stock some familiar grocery brands and a range of general merchandise on a "When it's Gone, It's Gone" basis, Tesco said.

The retailer said Jack's stores would be a mixture of entirely new sites, sites adjacent to existing stores and a small number of converted Tesco stores.

TESCO FIGHTBACK

Although Tesco is Britain's biggest chain with a 27.4 percent share, according to the latest industry data, it could be overtaken by Sainsbury's proposed 7.3 billion pound ($9.6 billion) takeover of Asda.

As shopping habits have changed after the financial crisis and the growth of online shopping, with thrift and smaller but more frequent shops now more common, Britain's big four grocers are scratching their heads over how to better defend their market share.

They have responded with lower prices and better service, although analysts say that with Aldi and Lidl growing at 10 percent each year it makes sense for Tesco to try and capture some of that growth. However, some are concerned Tesco's new format could simply cannibalise sales at its existing stores.

The Chatteris site was mothballed in 2015 when Tesco was in crisis and is now shared with discount general merchandise retailer Poundstretcher.

($1 = 0.7605 pounds)

($1 = 0.7589 pounds)

(Reporting by James Davey, Writing by Sarah Young; Editing by Alexander Smith and Paul Sandle)