Tesco Troubles

The New Battle of Britain

Aldi Einkauf GmbH Stores As Discount Grocer Plans U.S. Expansion
Aldi is upping its market share.
  • Why it matters

    Why it matters

    Aldi and Lidl’s gains in Great Britain could open a new foothold for the German discounters in one of Europe’s biggest markets.

  • Facts

    Facts

    • Tesco is the world’s second-largest food retailer by sales, behind only Wal-Mart.
    • Tesco shares slumped this week after it said it had overstated profits by at least $408 million.
    • Aldi and Lidl are taking business away from Tesco in the U.K.
  • Audio

    Audio

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In the United Kingdom, there is a special term for the middle-class shoppers who buy their groceries from German discount retails Aldi and Lidl for the first time.

They are called “seagulls,’ squawking at the low prices of prosciutto ham, dark chocolate and parmesan cheese.

Yesterday, the United Kingdom’s largest supermarket chain, Tesco, added some howls of pain to the cacophony in the sector. It admitted that it had overstated its half-year profits by 250 million pounds ($408 million). Four senior executives have been suspended and forensic accountants and lawyers have been called in to go through the company’s books.

The announcement, which is effectively Tesco’s third profit warning this year, highlights once again just how much the once mighty British retailer, which is one of the top three supermarket chains worldwide, is struggling on its home turf against the low-cost, limited-range German supermarket chains.

The threat from Aldi and Lidl is a huge challenge to Tesco’s new chief executive, Dave Lewis. He joined the company three weeks ago from Unilever to replace Phil Clarke, who stepped down in the summer after Tesco reported its worst sales slump in 30 years. At the time, the British supermarket chain blamed the recession and competition from budget brands, but analysts said the company has simply lost its way.

“Tesco has been under incredible pressure from Aldi and Lidl,” said Fraser McKevitt, head of retail and consumer insight at retail analysts Kantar Worldpanel. “Tesco has lost all meaning as a brand. No one knows if they are meant to be the cheapest, or the best quality, or the most convenient. And the new German discounters are beating them on all these points.”

Aldi and Lidl have shaken up the British supermarket sector since they arrived in the United Kingdom 14 and 10 years ago respectively.

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