UK's largest retailer Tesco targets budget rivals Aldi and Lidl

New discount stores aim to take on foreign grocers after long-running price war hammered profits

Tesco has cut-price competition in its sights with new budget chain. AFP

Tesco is readying a new chain of discount stores in the company’s most direct offensive on Aldi and Lidl to date.

The UK’s largest retailer is recruiting for staff to work in the new store format at sites in Immingham in north-east England and in Chatteris, about 110km north of London, according to postings on the LinkedIn social network. Tesco acquired both sites before chief executive Dave Lewis took over in 2014 and they have been dormant since.

“Tesco will be competing with Aldi and Lidl in what they do best,” Berenberg analyst Dusan Milosavljevic saidl. It will need to be bold as “half-measure, trial-like” store openings are doomed to fail, he added.

Tesco’s plans are another symptom of the pressures exerted by Aldi and Lidl’s rapid growth since the 2008 financial crisis, which sparked a price war that slashed profit margins across the industry. The company’s dominance is under renewed threat from Sainsbury’s proposal to buy Walmart’s Asda in a $10 billion deal that would create a new leader in the UK’s grocery industry.

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Tesco may name the chain Jack's, in homage to its founder Jack Cohen, according to The Mail on Sunday, which reported that the company may begin opening the stores in September.

The chain will be Tesco’s second new format of stores since acquiring wholesaler Booker this year. Tesco has opened two Chef Central outlets, which stock larger sizes of products aimed at catering professionals and families looking to save money by buying in bulk.

Tesco also cut prices on its own-brand products last month and is forming a purchasing alliance with French supermarket Carrefour to increase its leverage with suppliers.

Aldi and Lidl have increased their UK market share to almost 13 per cent, according to Kantar Worldpanel.