As discount retailers Aldi and Lidl move from strength to strength, what lessons can they learn from Tesco, their price-cut predecessor?

This week brought yet more evidence that value grocers Aldi and Lidl, long seen as food retail’s outsiders, are increasingly part of the mainstream.

Aldi’s sales rocketed by almost 30% in the 12 weeks to mid-August, the latest Kantar data showed, as the retailer once again showed rivals its heels. And Lidl, which also put in a strong sales performance, signalled that its ambitions are not limited to shifting cans of beans with the launch of a “bang on trend” womenswear collection in its 600 shops.

That was followed up with the launch of a £20m ad campaign on Wednesday focused on the Lidl brand rather than product. Lidl also said it expects sales growth of 20% this year to £4bn. The success of the pair has spooked the grocery establishment, forcing food retail’s great powers to react to their incursions.

All eyes are now on Tesco to see how incoming boss Dave Lewis will confront the discounter threat and restore the wounded giant to health. Price perception is part of Tesco’s problem, but it may not need to decimate margins to address that. In a note to investors, Nomura analysts argued that Tesco could re-engineer its core and value ranges. Put simply, it would create a new, merged tier that would resonate with consumers and be price-competitive with discounters but avoid margin loss.

It’s an idea that stands up intellectually and could be an answer to Tesco’s price image problem. However, that would not be enough on its own. Tesco’s difficulties are about more than price. Getting to the root of why shoppers have turned their backs on it to such an extent and putting solutions in place will top Lewis’s agenda.

Tesco of course was once the Aldi of its day, disrupting the status quo by combining great value and high quality with a laser-like focus on customers’ needs. If Lewis could restore that then Tesco would be in a good position to drive forward.

Ironically, Aldi and Lidl’s success increasingly makes them part of the establishment, and initiatives such as fashion collections mirror the earlier growth strategies of market leaders such as Asda and Tesco. As their market shares grow and they join the mainstream, Aldi and Lidl must watch out that they do not themselves succumb to the sort of complacency that can so often follow stellar success – notably at Tesco.

The discounters should take a leaf from former Tesco boss Sir Terry Leahy’s management manual and never lose a sense of paranoia.

  • George MacDonald, executive editor, Retail Week