Tesco (LON:TSCO) is working on a plan for a new discount grocery chain to take on Aldi and Lidl, The Sunday Times has revealed. The news comes amid ongoing industry war which has seen the German discounters pressure performance of UK’s ‘Big Four’ grocers.
Tesco’s share price has advanced in London this morning, having gained 0.80 percent to 200.90p as of 08:19 GMT. The shares, however, are marginally underperforming the broader UK market, with the benchmark FTSE 100 index having spiked 1.06 percent to stand at 7,167.48 points.
Tesco plots new chain
Senior industry insiders told The Sunday Times that Britain’s biggest supermarket was developing a separate brand which would match German discounters Aldi and Lidl on price, and offer a far more limited range of products than the average Tesco store. The FTSE 100 group is understood to be working with advisers from Boston Consulting Group on the new chain, and is believed to have asked key own-label suppliers to sign non-disclosure agreements before contributing to the project.
The news comes as Tesco continues to feel pressure from Aldi and Lidl, with the latest Kantar data showing earlier this month that the blue-chip’s grocer market share had continued to decline in the 12 weeks to January 28, having dipped 0.3 percentage points to 27.8 percent.
Analyst weighs in on plan
Clive Black, an analyst at Shore Capital, told The Times that a decision to enter the discount sector could be a case of “if you can’t beat ’em, join ’em”, adding that there was a risk it would “add costs and could cannibalise Tesco’s own sales”.
The FTSE 100 group’s plans come as the company looks up to wrap up its merger with Booker Group (LON:BOK). Last week, however, news emerged that an activist investor with a stake in the wholesaler was planning to oppose Tesco’s £3.7-billion bid unless Booker secured a better deal.