Investors Benefit from Tesco Discount Stores Plan

UK, London – 26 Jul, 2018 Shares in supermarket giant Tesco have rallied following news it is to take on German budget chains Aldi and Lidl. Shares opened at 259.10 GBX +1.20 (0.47%) on July 24 – just hours after Tesco confirmed it is planning to open new stores.

While tight-lipped about the exact format of the new outlets, market analysts are confident the UK’s largest supermarket will roll out a discount brand. And they are willing to bet the stores will be called Jack’s – a reference to the retailer’s founder, Jack Cohen.

Aldi and Lidl increased their market share, while Tesco’s eye was temporarily taken off the ball by an unsuccessful foray into non-food ecommerce. In an increasingly competitive marketplace, the smaller retailers managed to snatch a 14% slice of all grocery sales in the UK.

Shares in Tesco received an instant boost when news of the new-format stores was announced. It was the light at the end of a dark tunnel investors had been waiting for. And it came just weeks after Tesco accepted defeat and closed its online Tesco Direct platform.

The virtual tills were finally ringing as the loss-making website bowed out with a massive sale. Commentators acknowledged Tesco’s inability to compete with global ecommerce giant Amazon had led to the platform’s demise.

Locations of new-look Tesco stores revealed

New-format stores are set to open in London, Cambridgeshire and Lincolnshire. They are expected to boost local economies with hundreds of new jobs being created. In a bid to underline the store’s departure from Tesco’s traditional format, adverts for the vacancies make it clear the stores will be operated as a separate entity.

Investors were reassured earlier this month when Tesco confirmed it is to enter into a buying partnership with French retailer Carrefour. They were quick to recognise the cost-savings of a joint buying force. Tesco has also entered the wholesale market after buying cash and carry Booker.

Market analysts describe Tesco’s venture into discount selling as a “bold move”. While there is no doubt the new format will have to hit Aldi and Lidl where it hurts to regain market share, investors are clearly buoyed by the ‘new format’ promise.

In the last financial year, Tesco reported sales of £57.5 billion with a profit of £1.3 billion. It currently employs over 400,000 people. Shares in Sainsbury’s and Marks and Spencer dipped as Tesco confirmed plans for new stores.

Journey of the Tesco brand

Tesco was floated on the stock exchange in 1947. The opening share price was 25p. On July 24, 2018, the share price stood at 258.51 – not long after a 52-week low of 171. 95.

The household name started life as a market stall shortly after the First World War. Stallholder Jack Cohen turned a profit on his first day. The brand name came a year later – from an unlikely source. Mr Cohen made a tidy sum when he bought a shipment of tea. The merchant, a T E Stockwell, inspired a name seen up and down the land – Tesco.

Jack Cohen launched the now flagship Tesco store in Burnt Oak, London, in 1929. It expanded its operations in London throughout the 1930s before emerging as Tesco Stores (Holdings) Limited.

Is it worth investing in Tesco shares?

Considered on a downward spiral at the start of the year, are things looking up for the UK’s largest supermarket operator? With share prices now on the rise, some may consider this a good time to sell. Investors may be inclined to think twice before buying.

While Tesco has had a bad run, its new store format is piquing interest. There is an air of excitement about “bold” plans – but only time will tell if they pay off.

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