Budget supermarket Lidl has reached a 5.9% share of the UK grocery market after sales increased 7.7% in just three months to 11th August 2019. Since entering the UK market in 1994 the company has made converts out of critics. Historically shopping was akin to leisure for the British, it wasn’t an in and out operation like in Germany. If people could afford to splash out on branded goods, then they probably would. Following the rise of the German retailers Lidl and Aldi, British attitudes to retail are changing. There is much less stigma when it comes to budget supermarkets. Lidl and Aldi now attract people from all tax brackets whereas before budget retailers were being for people who couldn’t afford to go elsewhere.
Tesco remains the UK market leader with 27% of the market but the company is shrinking along with the rest of the big four. To beat Aldi or Lidl without drastically changing their business, Tesco has launched a budget retailer. The new chain, called Jack’s will be headed by Lawrence Harvey, the former Aldi UK executive and currently has 9 stores across Britain.
The change in strategy is the boldest move yet by the head executive. Dave Lewis took over the firm in 2014 and stirred it back to big profits after inheriting £250 million in missing money. Profits are back to over a billion. That’s not the only big move Tesco has made.
The company have recently formed an alliance with Carrefour, Europe’s biggest retailer. The strategic partnership with Carrefour was an effort to get better prices through increased purchasing power in a very competitive retail environment. The move will become operational in October.
Laith Khalaf, a senior analyst at Hargreaves Lansdown says, “The latest Tesco partnership looks like a direct response to the threat posed by the proposed merger of Sainsbury’s and Asda, who will have access to the global buying power of Walmart as a result.” The merger was eventually blocked by the Competition and Markets Authority but if it had been successful then it would have overtaken Tesco as the biggest UK retailer.
Patrick O’Brien, UK retail expert at GlobalData says the move is also an attempt “to reduce prices on own-brand products, and this is more of a direct response to Aldi and Lidl, whose offers are heavily weighted towards own-brand”. In all shops across the UK own brands are on the rise. Own brands have much cheaper because there’s no marketing costs involved. Previously own brands were stigmatised as low quality especially during the horse meat scandal, but German Retailers have helped subdued these attitudes.
Whether Jack’s will be a success or be seen as a inferior imitator is too early to tell but what is clear is that UK Retail is getting even more competitive.