A David and Goliath confrontation broke out in the supermarket sector yesterday as Aldi, the chain with about 2 per cent of the market, picked a fight with Tesco, Britain's biggest retailer.

Tony Baines, managing director of buying at the German-owned group, predicted that a new discount range expected to be launched by Tesco within weeks would be a flop.

He told The Times: “They will be able to compete with us on price but not on quality. For that reason I don't think it will work.”

He added: “You'd really expect a company like Tesco to have its own agenda; it does feel to me that they are really struggling to hold on to their customers. We are flying and believe we're taking more customers from Tesco than anyone else. But surely they must have something better to do than worry about a company as small as us?”

Tesco is understood to have been working for months on a new range of products to counter the rapid growth of discounters such as Aldi, Lidl and Netto.

The new range is expected to include up to 1,000 products, from tomato ketchup to washing powder, and to be priced below its own-brand Tesco value range.

Sales at Aldi and Lidl have been growing at a faster rate than their larger supermarket rivals for much of the year as customers search for bargains in the face of spiralling food price inflation and rising energy bills.

Aldi's market share in the UK has climbed to a record 2.2 per cent, 37 per cent up on the same month a year ago, according to figures from ACNielsen, the market research company. It claims that its 430 stores are serving nearly a million more customers each week than last year. Tesco's market share has remained flat, at 28.2 per cent.

Sir Terry Leahy, chief executive of Tesco, surprised retail executives last year when he said that Aldi was the rival supermarket chain that he most admired in the world.

Tesco executives set up a mock version of an Aldi store in the car park at their headquarters in January in an attempt to understand better how the discount model worked.

Aldi boasts that it is up to 20 per cent cheaper than chains such as Tesco and J Sainsbury because its distribution system is far smaller and more efficient. It stocks only 1,000 lines compared with the 40,000 on offer in a typical supermarket and sells a limited range of products - only one type of shampoo, for example. The large volumes mean that Aldi can sell the products at low prices.

Despite some criticism about the quality of its products, Mr Baines insisted that Aldi often matches or beats its competitors in blind-taste tests and he said that one in seven has won an award of some kind. He added that because of Aldi's low-cost business model it can invest more in offering products with better taste and flavour.

Sales of fresh fruit and vegetables doubled in July in Aldi's stores and the group has launched frozen lamb shanks, beef wellingtons and sea bass fillets.

Mr Baines said: “We are benefiting from the credit crunch, there is no question about that but once people come through the door they are noticing not only the price but the quality of what we sell, and we hope they will keep coming back.”

He added: “People have traditionally thought that a discount supermarket means ‘cheap and cheerful', but in Germany it's where the smart people go to shop. In the UK it's beginning to go that way as well.”

Tesco declined to comment.

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