Cheaper all the time.

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Being Tesco Stinks, but the Shopping Is Great

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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German discounters Aldi and Lidl are transforming the U.K. grocery market with a price war that is intensifying. That's great news if you’re a shopper enjoying ever-lower prices. It's pretty good news for those Bank of England policy makers reluctant to raise interest rates. But if you're Tesco Plc, life gets worse every month.

Dave Lewis, Tesco's recently appointed chief executive officer, has yet to reveal his grand strategy for turning around what is still Britain's largest grocer. He needs to get a wiggle on, as my mother used to say, before there's nothing left to save.

Tesco is bearing the brunt of the competitive hit from Aldi and Lidl. Today's sales figures from Kantar Worldpanel show Tesco's sales dropped 3.7 percent in the three months to Nov. 9, while Lidl added almost 17 percent and Aldi grew by more than 25 percent:

The two discounters are chipping away at the market share of their bigger competitors. Aldi's market share is now 4.9 percent, up from 3.9 percent a year ago; Lidl is up to 3.5 percent from 3 percent. Tesco, meantime, is down to 28.7 percent from almost 30 percent 12 months ago. Asda, which is owned by Wal-Mart Stores, is unchanged at 17.2 percent, while J Sainsbury has slipped to 16.4 percent from 16.8 percent.

Overall grocery sales are down 0.2 percent in the past year, which Kantar says is the first contraction since it began surveying the market in 1994. Kantar also tracks a basket of 75,000 products; it says shoppers are paying 0.4 percent less for their groceries than they did a year ago.

U.K. food prices have declined for four consecutive months, according to the Office for National Statistics, dropping at an annual pace of 1.4 percent in both September and October:

Lewis, who's been at Tesco since Sept. 1, is unlikely to be looking forward to Christmas. The race to the bottom in prices will make it hard to generate yule-time profit, and his company is still under investigation by the U.K. Serious Fraud Office for fiddling its accounts in recent years. Only five of the 26 analysts who cover the company recommend that investors buy Tesco shares, with 14 holds and seven saying sell.  

In a report published this week, Goldman Sachs analysts said the only way for U.K. supermarkets to make money is to close stores and cut capacity. They're correct; Internet shopping and delivery-to-home services are making edge-of-town superstores increasingly anachronistic, while town centers are flooded with smaller stores that are indistinguishable from the supermarket chains. As well as ending some of its overseas adventures, Tesco needs to shrink more than its prices.

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