Tesco’s new discount chain is a risky response to Aldi and Lidl

Following speculation that Tesco is to launch a new discount fascia in the UK to compete with Aldi and Lidl,

Thomas Brereton, Retail Analyst at GlobalData, a leading data and analytics company, offers his view on the fascia’s potential:

“The possibility of Tesco opening a discount fascia in a bid to neutralize the growing threat posed by German discounters Aldi and Lidl looks a bold move, but orchestrating the emergence of a new brand without damaging the reputation of the main Tesco image will require pinpoint precision to succeed.

“Since 2008 Aldi and Lidl have increased their combined market share from 2.9% to 9.4%, at the expense of Tesco and the rest of the Big Four, who have all struggled to respond. There are two issues Tesco must consider carefully: the longevity of the project given the scale necessary to make such a discount fascia profitable, and disrupting sales at the main brand through an erosion of brand image. Sainsbury’s attempted a similar concept in 2014 through a partnership with Netto, and its closure two years later came as a result of their failure to expand quickly or sizeably enough.

“Tesco could face a similar issue down the road; reports of an initial 60 stores would be a promising start, but expanding this to the couple of hundred or more needed for viability (without taking too many sales from existing Tesco locations) will be challenging. With its relationship with Booker and new association with European giant Carrefour, Tesco will feel that the buying power it now wields will be enough to make this a success.

“Tesco last tried the discounter approach in the mid-80s under Victor Value. As with Sainsbury’s-Netto it was eventually abandoned – blamed on the undermining of the main Tesco brand. CEO Dave Lewis will be keen to avoid a déjà vu, and may feel that the price-led customers of 2018 will not be as discriminating against own-label products as shoppers were 30 years ago.”

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