Tesco's budget brand would face a big battle

Catherine Neilan
Follow Catherine
Tesco Supermarket Report 92% Fall In Profits
Tesco is apparently mulling ideas for a standalone discount brand (Source: Getty)

It's a truth universally acknowledged that Tesco needs to do something rather drastic if it’s going to carry on being the big beast of British retailing. It’s also a truth universally acknowledged that big beasts don’t change their stripes fast.

The nature of these juddering juggernauts is to move slowly and appeal to as many people as possible, all the while hoping that their brand name will do most of the heavy lifting.

But Tesco’s problems are not going to go away: the world is changing and the way in which we shop is changing with it. For once this is not just about the digital world (where Tesco is, broadly, doing as well as you might expect) rather it’s about the challengers.

Aldi and Lidl have been around for so long, and have grown so large, that it feels anachronistic to describe them as such, but the impact they are having on the sector suggests this is the truest example of challengers we have yet. Aldi is now the fifth biggest supermarket in the UK, having leapfrogged Waitrose and Co-op last year. Lidl is eighth, but growing faster – although both German grocers are easily outpacing their British rivals, nibbling away at market share quarter after quarter.

Read more: Tesco is planning a new brand to fend off competition from Aldi and Lidl

Which may explain why Tesco is apparently mulling ideas for a standalone discount brand, launching a string of stores to take the fight to them. The idea appears to have won the backing from some analysts in the City – after all, Tesco needs to do something – but is discounting really the right way? Certainly discounting at your main brand has to be ruled out – Asda is still trying to undo the damage created by this strategy.

But doing it under another banner is no guarantee of success. Sainsbury’s joint venture with Netto was a dismal failure, despite the benefit of having a name people were already familiar with.

The environment is hardly conducive. Can a new brand really cut through when people are sticking with what – and who – they know? Aldi and Lidl have cemented their places as cheaper alternatives to the usual names, but are now used by those with more spending power because the message has got through that actually, there are some good products on sale (not least the wine).

Tesco’s plan is high risk and arguably seven years too late. For all the above reasons it will be a uphill struggle, but the bigger risk will be to sit back and do nothing.

Read more: Research suggests the expansion of the discounters might be slowing down

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles