Tesco plots new discount chain to rival Aldi and Lidl

The grocery giant is understood to be mulling a cut-price chain with a more limited range of products in a bid to win back shoppers from the discounters.

According to The Sunday Times, the retailer has brought in advisors from Boston Consulting Group to draw up plans for the prospective new brand.

The discount offshoot would reportedly offer a 3,000-strong product range, in stark contrast with the 25,000 usually available at Tesco Extra branches.

Tesco has reportedly asked a clutch of its own-label suppliers to sign non-disclosure agreements before contributing to the new initiative.

The grocer is also exploring a second option of a “Costco-type bulk purchase brand” similar to one of its subsidiaries in Thailand, according to The Guardian.

Tesco’s potential foray into discounting follows Sainsbury’s unsuccessful venture with discount chain Netto, which was launched in 2014 and shut down in 2016.

The potential launch divided opinion in the City.

Bernstein analyst Bruno Monteyne noted: “A discount banner economically makes sense, allowing Tesco to segment the market. Since the latter days of Philip Clarke’s tenure as chief executive we have consistently argued that new formats should be introduced to segment the proposition.

“Economically it makes no sense that an identical box of cornflakes sells for the same price in a deprived area (where rents and wages are low and the competition is hard discount) as in an upmarket area (where rent and wages are higher and where the competition is Waitrose and Marks & Spencer).”

However, Shore Capital’s Clive Black observed: “The concept of the limited assortment discounter is not a complex one; in fact it is very simple. However, the concentration and consolidation of Aldi and Lidl in the UK reflect the imposition of a quite defined business model from root to branch.

“Whether such a division, therefore, could be meaningfully created within a business like Tesco UK remains to be seen. In other words, does Tesco have the corporate culture and cost disciplines and capabilities of a limited assortment discounter?”