Analysts have sounded a note of caution on Tesco’s (LON:TSCO) plans to create a low-cost store, warning that it could prove as disastrous as rival Sainsbury’s (LON:SBRY) attempt to revive Netto, The Telegraph reports. The comments came amid reports that Britain’s biggest grocer was developing a separate brand which would match German discounters Aldi and Lidl on price.
Tesco’s share price rallied in the previous session, adding 1.15 percent to 201.60p. The advance was largely in line with gains in the broader market, with the benchmark FTSE 100 gaining 84.63 points to close 1.19 percent higher at 7,177.06, recovering some of the losses posted last week when equities around the world were sold off amid inflation fears.
Analysts cautious on Tesco plans
The Telegraph quoted retail expert Nick Bubb as commenting that an entry into the low-cost supermarket war would be “very late in the day” but Tesco could use the Booker deal to spearhead its attempt to fend off the German discounters.
“The obvious comparison is with the failure of the recent Sainsbury’s joint venture with Netto, as the key issue is how to scale such a business quickly, to achieve critical mass in marketing and physical presence,” he warned.
The newspaper quoted Clive Black of Shore Capital also noting that Tesco would have to make a major push to justify the move.
“To do it in a way that is complementary to the core business so that people don’t ask the question ‘this is exactly the same product, why can’t it be cheaper at the Tesco store’ is a big issue,” the analyst pointed out.
The 14 analysts offering 12-month price targets for Tesco for the Financial Times have a median target of 219.50p on the shares, with a high estimate of 270.00p and a low estimate of 170.00p. As of February 10, the consensus forecast amongst 20 polled investment analysts covering the blue-chip supermarket advises investors to hold their position in the company.