Tesco is set to launch a new chain of discount stores as early as September across the UK, in its latest effort to take on cut-price rivals Aldi and Lidl, which have transformed the expectations of price-conscious consumers.
The UK’s biggest retailer has drawn up plans to open up to 30 stores in the autumn, planning to refit some existing stores to introduce the new format or reopen mothballed sites that Tesco still controls, according to a person with knowledge of the plans.
The person said the new chain was expected to be called Jack’s — thought to be a reference to Tesco founder Jack Cohen — with a division of the company having recently attempted to register the name as a trademark. However, it remains unclear if the company has successfully acquired the Jack’s name.
Speculation about an alternative supermarket chain has grown since job advertisements appeared for roles at the company that involved a “new retail format . . . operated separately from the core Tesco business”.
British supermarket groups have come under pressure in recent years from the expansion of German grocers Lidl and Aldi, which offer a narrower range of products bought in huge volumes at deeply discounted prices.
In response, traditional retailers engaged in damaging price wars, but have since sought to introduce new ways of shoring up their market share while boosting profits.
Clive Black, analyst at Shore Capital, said the small number of new stores would not be enough to make a difference to a retailer as large as Tesco — which has about 3,000 stores in the UK.
But in some low-income areas, “a relatively low-cost conversion of existing challenged outlets” could make those stores more productive, he said.
Bruno Monteyne, analyst at Bernstein, said Tesco was in a position to launch the new stores because it would be able to supply them with its own-label Farm Brands — priced within 2 per cent of equivalent hard discounter products — while its merger with wholesaler Booker last year also allowed it to provide competitive prices on some items.
“If Tesco is doing such a thing, it won’t be a copy of hard discounters. It will target the same price points and quality but will bring unique ranges and services,” said Mr Monteyne.
The ripple effects from Aldi and Lidl’s push into the UK continue to transform the sector.
Earlier this month, Tesco announced a deal with Carrefour of France to combine their market strength to jointly purchase own-brand products and other goods as part of a long-term tie-up that will initially run for three years.
The effort is a direct response to the German discounters, whose cheap own-brand options have proved popular for price-conscious shoppers.
Tesco this year also acquired food wholesaler Booker for £4bn to boost profits, although falling sales in its core UK supermarket business has led the group to invest in cutting prices in fresh foods in recent months.
In April J Sainsbury, the UK’s second-largest grocer, announced a planned takeover of third-ranked Asda, a subsidiary of US-based Walmart, with the groups promising that they could achieve price cuts of up to 10 per cent on everyday items if the tie-up can be completed. The deal is being investigated by the Competition and Markets Authority.