Tesco takes on German rivals with new discount store format

Tesco, Britain's biggest supermarket group, will go head to head with German rivals Aldi and Lidl on Wednesday by launching its own discount store format.

The fast-expanding discounters made a big breakthrough in Britain when the economic crisis hit in 2008 and more shoppers were prepared to give their limited range stores a go. The pair now have a combined 13.1 percent market share.

Tesco's Chief Executive Dave Lewis, who earlier this year oversaw its purchase of wholesaler Booker for nearly 4 billion pounds to expand into supplying caterers and local shops, is hosting a media and analyst event to reveal the new discount store format in Cambridgeshire, eastern England, an industry source has told Reuters.

The signs for the new store at Chatteris are already up, but under wraps ahead of the shop's official launch. The site was mothballed in 2015 when Tesco was in crisis and is now shared with discount general merchandise retailer Poundstretcher.

Tesco's new store format, which media reports have said will be named "Jack's" after Jack Cohen who in 1919 founded a business that became Tesco, will open to the public on Thursday and up to 60 existing outlets could be converted.

Although Tesco is Britain's biggest chain with a 27.4 percent share, according to the latest industry data, it could be overtaken by the proposed 7.3 billion pound ($9.6 billion)takeover by Sainsbury's , the No. 2 player, of Walmart's Asda, which is third largest.

As shopping habits have changed following the financial crisis and the growth of online shopping, with thrift and smaller but more frequent shops now more common, Britain's big four grocers, which include Morrisons , are scratching their heads over how to better defend their market share.

They have responded with lower prices and better service, although analysts say that with Aldi and Lidl growing at 10 percent each year it makes sense for Tesco to try and capture some of that growth.

However, some are concerned Tesco's new format could simply cannibalise sales at its existing stores.

($1 = 0.7605 pounds)