Monday, January 7, 2008

Tesco Creating Another New Store Format: No Frills, Small Format, Price-Impact

Tesco, parent company of Fresh & Easy Neighborhood Market, is back at the retail food store format drawing board, this time creating a new, small format, no frills, deep discount store designed to fend-off competition in Britain from German grocers' Aldi and Lidl's small format, deep-discount grocery markets, which have been growing in numbers and popularity in Britain, and taking market share away from Tesco's supermarkets.

London's reports today that Tesco, the third-biggest retailer in the world, began last summer converting an old warehouse owned by Jack Farmer, the retailer's founder, into a mock German discount store. The reason: To design a no frills, small format, limted assortment, discount format of its own to counter the Aldi and Lidl threat in the UK.

This is the same process Tesco used to develop its Fresh & Easy, small format grocery market chain in the U.S. The retailer acquired an old warehouse in the U.S., and used it to tinker around with various design and merchandising concepts until it arrived at what is today the Fresh & Easy store format.

In fact, according to our reading of the story--and some digging around over the phone with sources we did today--it sounds like the new Tesco small format, deep discount store prototype the company is currently working on might be at least one part Fresh & Easy.

That part is the low-price leader, basic grocery aspect of Fresh & Easy stores. Fresh & Easy stores open in the U.S. offer a limited assortment of private label and national brand basic groceries at very low prices--thus far lower overall prices than the supermarkets in the stores' trading areas in Southern California, Arizona and Nevada.

In fact, the format under design might be very similar to Fresh & Easy overall. Aldi and Lidl stores in Britain sell a limited assortment of high-end, specialty and natural/organic groceries and prepared foods in addition to basic groceries. The stores offer these upscale items at a super-low price as well. This is similar to Fresh & Easy stores, which combine the basic grocery concept in the stores with an extensive offering of fresh, prepared foods at reasonable prices, along with a limited selection of specialty, natural and organic groceries priced at a discount.

Aldi has about 900 stores in the U.S. They are small format, no frills stores similar to those the German grocer operates in Europe and elsewhere throughout the world. However, unlike the Tesco Fresh & Easy stores, (and unlike Aldi stores in the UK) Aldi's U.S. grocery markets don't offer much in the way of prepared foods or specialty and natural/organic grocery items. Lidl doesn't currently have any stores in the U.S.

Read the article, "Tesco Moves to Counter Aldi and Lidl," here.

Sidebar News: Tesco isn't waiting for its new, no frills, small discount store format to be finished: This week the retailer will begin to match Aldi's and Lidl's prices on over 2,000 items in its Tesco supermarkets in Britain. The giant retailer also just launched 300 no-frills Lidl and Aldi-style products, with another 200 items on the way. Read more here.

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