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Tesco undercuts Lidl and Aldi
[London] Tesco Plc unveiled its riposte to German discounters Lidl and Aldi -- a new line of stores named after the UK supermarket chain's founder, Jack Cohen, that plans to woo budget-conscious shoppers with a patriotic pitch.
Tesco allowed journalists into its first Jack's store Wednesday in Chatteris, England, a small town 80 miles north of London. Private label products, featuring a red Jack's logo, make up more than half the total range.
"The intention is for us to be cheapest in town," Chief Executive Officer Dave Lewis said at the event.
Chatteris is the first of 10 to 15 openings planned over the next year offering low prices such as 2.89 pounds (S$5.22) for a liter of olive oil. Shoppers can scan their items as they take them off the shelves with a smartphone app and then pay at the end.
With the new chain, Tesco has to walk a fine line, challenging the discounters while avoiding cannibalization of its main store brand with lower prices. The UK's largest retailer has struggled to compete in recent years as cheaper supermarket chains such as Lidl and Aldi have clawed away market share.
UK flags emblazoned on Jack's products including milk, cereals and potato chips advertise their Britishness, reflecting a push by grocers to emphasize local provenance. Tesco said eight out of every 10 products in Jack's will be produced in Britain. The flag-waving also lets Tesco contrast its UK roots with the German ownership of Lidl and Aldi, at a time when Brexit has heightened some Britons' awareness of nationality.
Tesco has also had to contend with consolidation in the market, opting to acquire wholesaler Booker earlier this year just before J Sainsbury Plc agreed to purchase Walmart Inc.'s Asda. The moves appear to be paying off, with Tesco posting its 10th consecutive quarter of growth in June, as it cut prices to ward off rivals.
The growth comes after a turbulent period for Tesco. The supermarket chain struggled to compete with changing market headwinds and just two months after Lewis took over in 2014 an accounting scandal wiped 2 billion pounds off its market value.
The German discounters continue to make inroads, with Aldi's share of UK grocery sales rising to 7.6 per cent in the 12 weeks through Sept. 9 from 7 per cent a year earlier, according to Kantar Worldpanel. Lidl rose to 5.5 per cent from 5.3 per cent in that period, while Tesco slipped by half a percentage point, to 27.4 per cent.
Alasdair McKinnon, investment manager at Tesco shareholder Scottish Investment Trust, said that the discount format is an interesting idea because it uses excess space and may allow Tesco to compete better.
"It will be easier for them to judge whether it works or not," McKinnon said in a phone interview. "If a standalone discount store isn't making money in cash, I would imagine they would shut it."
Other UK grocers have struggled to break into the discount business. Sainsbury opened stores under the Netto brand in 2014 but shut them two years later. The company has vowed to cut prices on some products by as much as 10 per cent as a result of the Asda deal, which U.K. competition regulators are reviewing on a fast-track basis.