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Tesco 'planning' discount chain to take on Aldi and Lidl

The Guardian logo The Guardian 11/02/2018 Miles Brignall

© Getty 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 at their own game.

Tesco is said to be developing a separate brand that would match the German discounters on price, offering a far more limited range of products than the average Tesco store, at around 3,000 compared with 30,000 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 another option could involve a new “Costco-type bulk purchase brand”, similar to an operation Tesco already has in Thailand.

Related: Sorry Tesco, sorry Waitrose - Aldi is now officially the UK's favourite supermarket

Rise of the discount supermarkets © PA Rise of the discount supermarkets

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

Aldi and Lidl have been stealing shoppers from the so-called 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.

a selection of UK supermarket logos: The success of Lidl and Aldi has rattled UK supermarkets. © Getty Images The success of Lidl and Aldi has rattled UK supermarkets. Aldi overtook the Co-op in 2017 to become the UK’s fifth-largest grocer, having surpassed Waitrose in 2015. 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 so far 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.

Related: Aldi: The incredible story of the German supermarket that took over the world (Lovemoney)

Tesco has been trying to recover its mojo in the face of stiff price 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. Last September it emerged that Aldi and Lidl 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.

Related: The 'Banana Trick' and other scams: One in FOUR Brits are self-checkout shoplifters, figures show

© Getty

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.

Retail analyst 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.

The French supermarket Carrefour successfully ran a discount chain Dia acquired through a merger with Promodès in 1999. Carrefour spun off Dia in 2011 and then bought back its French operations in 2014.

NOW SEE: Why are Brits abandoning Costa?

© Getty

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