LONDON: Tesco, the UK’s largest supermarket group, has been planning to create a new discount grocery chain to rival the two German discounters, Aldi and Lidl, that have taken the UK by storm, a new investigation reveals.

According to an investigation by the Sunday Times, Tesco is said to be working on a new brand, which would offer a limited range of products in an effort to match the German chains’ prices and compete at a different price point.

Having hired Boston Consulting Group to work on the plans, the report suggests the company has also asked suppliers to sign non-disclosure agreements ahead of the new project.

Last week, following the news of Charles Wilson’s appointment as the CEO of Tesco UK and Ireland, the brand noted that amid a management shake-up, the company will begin testing new concepts and formats in stores, “to better serve customers”.  

One such format, aimed at professional buyers, would move toward a Costco-style concept of bulk purchase, similar to the company’s business in Thailand.

Data from Kantar Worldpanel showed that Tesco’s sales had grown by 2.6% in the last quarter, despite all four of the UK’s biggest supermarket chains losing market share to both Lidl and Aldi.

Any further encroachment has the potential to inflict serious damage on Tesco, which currently enjoys a 28% share of the country’s grocery market.

Both German retailers have seen dramatic improvements recently: Kantar Worldpanel’s data noted Aldi and Lidl’s sales have grown by 16.2% and 16.3% respectively, so that Aldi now enjoys 6.9% market share while Lidl has 5%.

Beating the discounters at their own game won’t be easy, though Tesco’s recent acquisition of Booker, a wholesale retailer with its own discount branded products could prove to be a major asset in this particular fight.

For many brands, the discount route jars with the need to maintain the value of the core brand. Tesco has tried once before to establish a discount competitor, as has Sainsbury’s.

The news of the move comes as a Which? survey of 6,800 UK consumers found Aldi to be the country’s favourite supermarket, knocking Waitrose off the top spot. Lidl came in third in the same survey, with Marks & Spencer in second place.

Sourced from The Sunday Times, Guardian, Reuters, Telegraph; additional content by WARC staff