Tesco roars but will the beast now get its claws into the discounters?

The company offered no update on the hottest rumour in retail: the potential launch of a competitor to Aldi and Lidl

Is Tesco boss David Lewis pondering the launch of a discounter to take on Aldi and Lidl? (Reuters)

Is Tesco going to go head to head with Aldi and Lidl by launching its own discounter?

Those hoping for some meat on the bones of one the hottest rumours in retail alongside the supermarket chain’s latest results were left disappointed.

That’s understandable on a day when bosses had other things to talk about, namely a set of numbers that dazzled the City and sent Tesco shares shooting up the boards.

Pre-tax profits of £1.3bn in 2017 were up from just £145m the previous year. Sales grew for the ninth consecutive three-month quarter. More than 260,000 extra shoppers visited Tesco.

We’ve known for a while that the beast is back under David Lewis. Results like that clearly show that it is roaring.

As a result, the vocal critics of Mr Lewis’s decision to take his basket down the merger aisle with the acquisition of wholesaler Booker have piped down (for now). The promise of £200m of annual savings through the deal didn’t hurt. Promises are something Mr Lewis has had a habit of delivering on. A Cambridgeshire store with a mini Booker cash and carry attached created a flutter of interest and some approving nods too.

But the big story is still the possibility of Tesco taking on Aldi and Lidl. Set against the Tesco bonhomie is the fact that the German pair keep on grabbing market share.

The consensus is that they will eventually reach an equilibrium with their traditional competitors, but we’re a long way from that happening. Between them, they now account for £1 in every £8 spent in supermarkets. They could easily double that, or more, before hitting that point. Which poses a question for their competitors: do you let them beat you like this? Or do you join them, even if that means being late to the party?

A Tesco firing on all cylinders has the muscle and the wherewithal to take on the challenge.

It has dipped its toes in the discount waters in the past only to run back up the beach. So has Sainsbury’s, in combination with Netto, only for it to walk away too.

A major concern was that such ventures would end up cannibalising their core businesses (hence the use of distinct brands).

The counter argument to that is that UK shoppers are buying into the discounters’ offer in increasingly numbers. If that’s where the customer is going, you might be best off taking the hint and grabbing a piece of the pie.

Booker, which has a limited range of discount produce, and enhances Tesco’s already impressive buying power, could help.

But it’s go big or go home. The previous attempts foundered over a lack of commitment as much as anything else. That’s a commodity neither Aldi or Lidl are short of, as their numbers, which are typically every bit as impressive as Tesco’s, make clear every time they release them.