TESCO is developing a new range of own-brand products to tackle the so-called Aldi effect which has seen thousands of hard-pressed families defect to the German discounter.

The top-secret project, which is due to be unveiled in the autumn, aims to drive down prices of hundreds of items in the grocery giant’s standard own-brand range.

Tesco chief executive Sir Terry Leahy ordered the review after becoming rattled by news that Aldi and rival discounters such as Lidl and Netto were expanding at a faster rate than the big four supermarkets.

Aldi has reported sales for the last three months up 21% on the same period last year, as consumers grapple with the rising cost of the weekly shop.

According to the Office for National Statistics, food bills have soared by 9% over the past year.

Aldi, which promises to save customers £30 on a £100 weekly shop, bases its winning formula on no-frills stores which stock just 1,000 product lines, compared with 25,000 in a traditional supermarket. Most are own-brand, with only a handful of branded products. By concentrating on so few products, but buying in large quantities, discounters are able to offer lower prices.

Paul Foley, Aldi’s managing director, has declared that he intends to open one store a week until he reaches his target of 1,050 outlets in the UK.

Last month Tesco shares fell 2.5% to their lowest level in a decade after Leahy admitted that discount rivals such as Asda, which launched a range of staple items priced at 50p, and Aldi were “having a moment in the sun” as shoppers were more cautious and household budgets stretched.

There has been a clear change in shopping habits, with the boom in organic food coming to an end – price is now the most important factor.

Shoppers are buying more goods on promotion and are trading down to lower-priced ranges.

Tesco said this weekend that it was too early to discuss the own-brand project, but confirmed it was examining ways to “make things easier” for customers affected by the credit crunch and that would involve looking closely at own-brand.

Tesco’s own-brand products fall into three ranges: Value, at the budget end, Finest, a premium brand, and standard products in between.

The chain’s research has found that 80% of customers regularly buy from the Value range, 70% buy from the Finest range and most cherrypick from both.

Tesco is concentrating on ways to bring down the cost of its standard range significantly without compromising on taste.

The supermarket chain is not alone in starting to think of new ways to appeal to cash-strapped consumers, it appears. Its rival J Sainsbury is also said to be drawing up plans for its own new budget range in an effort to entice hard-up customers.

The prevailing mood in the grocery sector was typified this month by Marks & Spencer, which disclosed that sales in its food division had fallen by 4.5%.

Turnover has dropped as customers shun M&S’s upmarket convenience food.

Sir Stuart Rose, executive chairman of the high-street giant, said at the time: “Pressure on consumer spending and increased competitor pricing and promotional activity, coupled with changes in consumer buying patterns, have resulted in a significantly weaker performance”.

On the day the figures were released, M&S announced that Steven Esom, head of food, would leave the company after only a year in the job.

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