New brand: Tesco is believed to be considering launching a cut-price brand to battle the threat of Aldi and Lidl

Tesco hatches plan to spin-off separate cut-price chain

Tesco is exploring the possibility of launching a cut-price supermarket chain to challenge the growing threat of German discounters Aldi and Lidl.

Britain’s biggest supermarket has a market share of 27.8 per cent according to recent statistics from Kantar Worldpanel, while Aldi and Lidl combined make up 11.9 per cent.

However, the German discounters have grown substantially over the years and now have a bigger market share combined than Morrisons.

New brand: Tesco is believed to be considering launching a cut-price brand to battle the threat of Aldi and Lidl

New brand: Tesco is believed to be considering launching a cut-price brand to battle the threat of Aldi and Lidl

Furthermore, Tesco recorded sales growth of 2.6 per cent in the 12 weeks to the end of January but it still lost some market share, with Aldi’s sales increasing 16.2 per cent and Lidl 16.3 per cent.

The plan for a spin-off cut-price chain would mean Tesco price matching the German stores and offering a far more limited range of products than the average Tesco store.

According to the Sunday Times Business section, it is working with advisers over the new discount chain.

It is believed to have asked key own-label suppliers to sign non-disclosure agreements before taking part in the scheme.

A similar plan was hatched in previous years under former chief executive Sir Terry Leahy, but didn’t make the light of day over fears it might undermine prices in Tesco main stores.

A senior retail source told the Sunday Times that the spin-off would ‘almost endorse these foreign discount chains by copying them.’

Aldi: It, along with Lidl, has seen substantial growth in Britain in the last few years

Aldi: It, along with Lidl, has seen substantial growth in Britain in the last few years

Industry sources, according to the report, claim that the cut-price chain would have around 10 per cent of the products of Tesco main stores – or 3,000 rather than 30,000.

It already has a convenience chain, One Stop with 900 chains, but it is believed the new brand would be separate from this.

The popularity of the discount stores has ballooned in recent years.

When This is Money went behind the scenes at Aldi, it said part of its appeal was smaller stores with customers able to do their weekly shop in under half an hour.

Furthermore, it says it uses many of the same suppliers as upmarket rivals and because it has fewer choices – such as one tomato ketchup, rather than dozens – time conscious shoppers are in and out quicker.

Aldi plans to have 1,000 stores in Britain by 2022 while Lidl plan to open between 50 and 60 a year in the same time period.

Dave Lewis, the current chief executive of Tesco, revealed plans to take over wholesaler Book last year – a £3.7billion deal which was given the green light in November.

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