Tesco ‘planning’ discount chain to take on Aldi and Lidl

February 13, 2018, 6:00 pm
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Source: The Guardian

Britain’s biggest supermarket group is understood to be working on a secret plan to develop a new discount grocery chain to take on cut-price chains Aldi and Lidl.

Tesco is said to be developing a separate brand that would match the German discounters on price in a bid to halt the constant drift of customers away to the cheaper rivals. The new chain would offer a far more limited range of products than the average Tesco store, at around 3,000 compared with the 25,000 diferent items often available in a Tesco Extra.

The retailer is reported to have hired advisers from Boston Consulting Group to work on the plans. It has asked a number of key own-label suppliers to sign non-disclosure agreements before contributing to a new project, according to a report in The Sunday Times.

Indicating the scale of the threat posed to the supermarket chains by the discounters, the Guardian understands a second option has also been under consideration, which would involve a new “Costco-type bulk purchase brand”, similar to a business Tesco already has in Thailand.

Tesco declined to comment on any moves, but last week revealed it planned to “develop new formats to better serve customers”.

Aldi and Lidl have been winning shoppers from the big four supermarkets – Tesco, Asda, Morrisons and Sainsbury’s – since the last recession when rising food prices encouraged Britons to shop around for their groceries.

in 2017 to become the UK’s fifth-largest grocer, having . The most recent figures from grocery industry analysts Kantar Worldpanel show Aldi’s market share reached 6.9% in the 12 weeks to 28 January, up from 6.2% a year ago.

Lidl increased its stake from 4.5% to 5% over the same period. By comparison Tesco, Sainsbury’s, Asda and Morrisons have all lost market share over the past year.

Previous attempts by UK supermarkets to launch discount brands have failed. However, experts said the recent tie-up between Tesco and the wholesaler Booker, which already has its own discount branded products, could be a major advantage.

Tesco has been trying to re-establish its previous dominance in the face of stiff competition from the German discounters. Shoppers faced with declining incomes flocked to Aldi and Lidl when the financial crisis first hit, and many kept returning.

The way consumers do their food shopping is also changing rapidly. Fewer people now do a big weekly shop at an out-of-town superstore, preferring to buy food more regularly and more locally. Big superstores have also been hit by an increase in spending on takeaways and more online food shopping, to the extent that the big supermarket groups are now trying to lure in other retailers to fill shopfloor space they no longer need.

Last year it emerged that Aldi and Lidl now account for £1 in every £8 spent in UK supermarkets.

Tesco suffered a string of profit warnings and an accounting scandal in 2014, caused in part by competitive pressure from the discounters. Under Dave Lewis, who replaced Philip Clarke as chief executive in 2014, the supermarket has sharpened prices and narrowed its product ranges slightly. A whole new brand, though, would be a major investment, say retail experts.

Tesco last tried the discount route under the leadership of Sir Terry Leahy, but the move was abandoned because the management team at the time feared it might undermine the main brand.

Sainbury’s tried a similar venture in 2014 via a joint venture with Danish discount chain Netto. Two years later it was scrapped and the stores were eventually sold to Asda.

Bryan Roberts, insights director at TCC Global, said the Tesco move sounded credible.

“There were rumours that Tesco was planning something like this two or three years ago, and while Tesco undoubtedly has the buying buying power and expertise to make it work, recent history suggests these moves tend to fail in the UK. Discounters work in a fundamentally different way, and it can be hard to change the store management’s philosophy,” he said.

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