Grocery giant Tesco (TSCO) is poised to cut the number of products it sells by up to 20% as it fights back against the discount duo of Aldi and Lidl. This is according to a Sunday Times report.

The firm’s chief product officer told suppliers at a business update event last week that cuts were coming mainly in household products such as toilet roll where management believes it stocks too wide a range of goods.

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Since taking over in 2014, Tesco chief executive Dave Lewis has already cut the number of products on the shelves by more than half from 90,000 to 40,000.

The firm has also shrunk its number of suppliers to give it greater bargaining power and since 2016 has increased its number of own-label ranges which have better margins than branded goods.

STILL THE LEADER, BUT CHASED HARD

Tesco is still the dominant force in the UK grocery sector, with more than a 27% market share against its nearest rival Sainsbury (SBRY) with just a 15.4% share, according to research firm Kantar Worldpanel.

However, in the last few years discounters Aldi and Lidl have opened new stores at a ferocious pace, allowing them to increase their market share aggressively.

At the start of 2016 their combined share was 10% yet by Easter 2017 it had passed 12%. The German duo's combined market share is now approaching 14%, or roughly £1 in every £7 spent in the UK on groceries.

Since the beginning of the year their combined share has risen by 0.8% while Tesco’s market share has fallen by 0.5%, Sainbury’s (SBRY) share has fallen by 0.8% and Morrison’s (MRW) share has fallen by 0.3%.

CUT-PRICE DEALS

Tesco began offering cut-price deals on a range of brand-name fresh and ambient foods last week and is also offering ‘selected products’ from its discount format Jack’s in Tesco stores during May in an effort to draw customers away from the hard discounters.

At the same time, in a first for any supermarket chain it has introduced discounts of up to 50% on certain products exclusively for its loyalty card holders. According to Tesco’s website it has 19 million Clubcard holders.

Management will be hoping that by returning to promotions Tesco can reclaim some of the ground it has lost to Aldi and Lidl this year and kick-start a recovery in sales.


Issue Date: 13 May 2019