Tesco prepares its own discount chain

British supermarket group Tesco is apparently developing its own discount formula for the United Kingdom, an attempt to compete with Aldi and Lidl, two competitors that steal away an increasing share of the market.

Discount chain or bulk formula?

Tesco has appointed Boston Consulting Group advisors to develop a new store formula. Discount chains Aldi and Lidl have kept growing ever since the economic crisis hit in the United Kingdom. They are increasingly popular and attract an increasingly larger share of the market: one British pound in eight is currently spent in a German discount store and Aldi has even been chosen as the Brits’ favourite supermarket.

According to The Sunday Times, the goal would be to develop a separate discount formula, with a more limited product range of about 3,000 items. By comparison, an average Tesco Extra store currently offers about 25,000 products. Several major private brand suppliers have already been asked to sign NDA’s before being allowed to participate in the secret project.

The Guardian believes the chain is also investigating another option: sources confirm that it could just as likely launch a new bulk formula. This would be a wholesale and bulk-focused formula, like Makro or the wholesale chain Tesco used to operate in Thailand until mid-2017. 

Previous attempts failed

Tesco already acquired food wholesale group Booker Group last year, which mainly deals with retailers in the hospitality industry. Thirty percent of its turnover comes from tobacco-related products. However, it faced a lot of criticism for that acquisition and it pulled the plug on its Thai wholesale formula in June 2017. Back then, it said that it would focus more on consumer convenience.

It is more likely that Tesco will actually choose a discount formula, seeing how Booker already has several private discount brands. The supermarket company has refused to comment on the rumours: it only confirms it is developing new formulas to better serve the customer.

The company abandoned a previous attempt at a discount formula, because the board feared the new chain would cannibalize the main formula. Competitor Sainbury’s attempted a similar strategy in 2014 and set up a joint venture with Danish discount chain Netto, canceling the project two years later.