Tesco set to launch new discount format next week

LONDON (Reuters) - Tesco, Britain’s biggest supermarket group, is set to launch a new discount format next week, taking the fight directly to German discounters Aldi [ALDIEI.UL] and Lidl who have been winning market share for a decade.

FILE PHOTO: A Tesco supermarket is seen, in west London on September 30, 2008. REUTERS/Toby Melville/File Photo

Tesco on Tuesday invited reporters to join Chief Executive Dave Lewis at its site at Chatteris in Cambridgeshire, eastern England, on Sept. 19. The site was mothballed in 2015.

“We will be sharing some exciting news,” Tesco said in a statement without elaborating.

An industry source told Reuters the plan was to launch a new format discount store.

In July, Tesco advertised for staff for a “new store format” in Chatteris, seeking to recruit retail assistants, retail customer service assistants and retail managers.

Media reports in July said Tesco was close to launching a chain of discount stores in Britain called “Jack’s” after Jack Cohen, who founded a business in 1919 that became Tesco.

The reports said Tesco could convert up to 60 existing outlets.

Tesco is Britain’s grocery market leader with a share of 27.4 percent, according to the most recent industry data.

However, the proposed 7.3 billion pounds takeover by Sainsbury’s, the No. 2 player, of Walmart’s Asda, the No. 3, could see the combined group overtake Tesco as Britain’s biggest grocery chain.

The rapidly expanding Aldi and Lidl have a combined 13.1 percent market share. Their big breakthrough came when the economic crisis hit in 2008 and more British shoppers were prepared to give their limited range stores a go.

Habits for thrift and smaller but more often shops then stuck, leaving Britain’s big four grocers, also including No. 4 Morrisons, scratching their heads over how to better compete as their market shares were chipped away.

Sainsbury’s struck a joint venture with Denmark’s Dansk Supermarked in 2014 to bring the Netto discount brand back to Britain but closed its 16 stores two years later, blaming the difficulty and cost of growing at pace and scale.

Tesco has attempted to go down the discount route in the 1980s, with its Victor Value brand. It ditched the concept.

Analysts said the key issue was how Tesco could scale up the business quickly, although they said the risk to it was fairly limited if it was converting existing stores rather than taking on expensive new leases.

Shares in Tesco, up 27 percent in the last year, were down 1.5 percent at 1305 GMT.

Tesco, which this year purchased wholesaler Booker for nearly 4 billion pounds, said in June it was on target to deliver its medium term financial targets.

(This refiled version of the story removes extra word from headline).

Reporting by James Davey; Editing by Jason Neely and Edmund Blair