Australian conglomerate Wesfarmers has announced that its Coles supermarket business will be launching a new discount chain to replace its struggling Bi-Lo format.

The new banner will offer low-cost products and a greater variety of own-label goods, the company indicated.

Coles MD Ian McLeod said the new concept would be tested in pilot stores before a national rollout.

When Wesfarmers acquired the Coles business last year, the Bi-Lo chain was converted to the Coles banner. However, this move alienated budget conscious consumers and led to a drop in full year profits.

Only about 70 Bi-Lo stores remain - about 130 have already been converted.