Fascinating to hear that Tesco is to launch its own version of the discount store. Those of us who have been around for long enough may get a sense of deja vu here. In the early 1980s, Tesco dusted off a brand it had owned for some years and used it to launch a discount chain. Then as now, it was responding to the relentless expansion of Aldi (and Lidl). It didn’t last long. Tesco sold the stores and used the Victor Value brand as its entry level label within the overall offer.
Will it work this time? As a principle, I think this kind of strategic response is very weak. The best response Tesco can make is surely to be more Tesco, not to be Aldi. The fundamental weakness of the plan is the need for Tesco to be as good as Aldi at being Aldi. Today’s retail market is awash with disruption. The most common strategic response is trying to match the disrupter in what they are good at. So, we see the crazy expenditure of capital in trying to be second (or fifth or tenth) best at delivery and fulfilment, behind Amazon. We see retailers with full price models trying to discount and match the value delivered by retailers structured to make returns off narrower margins. This is not smart.
By far the best strategic response is to understand exactly what you are best at, and leverage it better. Tesco is better than Aldi in certain key areas – choice and service for example. However, the company’s body language suggests it is weakening in both these areas and planning to follow Aldi’s agenda. Meanwhile, Tesco ties up capital, management time and attention. Aldi will be delighted by this news. A battle on a ground of its choosing, using weapons of its choice. It doesn’t get any better than that.
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