Tesco: online and local stores drive growth
Tesco’s online business has grown by a whopping 90% across the three months to the end of August, driving overall food sales up by 9% and seeing pre-tax profits for the half year hit £551 million.
The shift to online is part of a wider change in shopping habits, which has seen consumers doing a large weekly shop online, then heading to local Tesco stores for a top up.
This has seen large store sales grow by just 1.4%, while the retailer’s local store portfolio has seen a 7.6% rise in sales across the period. Average basket sizes in large stores have, however, risen by 56% as shoppers make fewer trips.
However, with the surge in online happing more rapidly than expected and with these changes in shopper habits coming down the pipe, Tesco has also incurred a hefty £553 million bill for additional safety measures in these stores, wiping out most material gains from the quarter.
The announcement is the first for new CEO Ken Murphy, who joins from Boots Walgreens Alliance and replaces outgoing chief executive Dave Lewis at the Top100 retailer in RXUK Top500 research.
Murphy commented on the online shift: “Responding to the significantly increased demand, we rapidly grew our online business, more than doubling capacity to 1.5 million orders per week, allowing us to serve 674,000 vulnerable customers. To support this accelerated shift in customer demand, we extended picking hours, widened delivery windows and brought in additional colleagues on a temporary basis. In August, we converted 16,000 of these temporary roles into new permanent ones. Online grocery sales had grown from circa 9% of total UK sales to over 16% by the end of the half.”
More generally, Murphy adds: “In March, we strengthened our value proposition with the launch of the ‘Aldi Price Match’ campaign. We extended this to more than 500 Tesco and branded products in July, delivering consistently low prices on even more products that customers buy every week. In addition, last month, we extended our Clubcard Prices initiative, whereby Clubcard holders are now able to access 2,000 exclusive deals. Having made these meaningful price investments, we expect to make additional investments in the value proposition across the remainder of the year.”
Hinting at where he is looking to steer the retailer under his tenure, Murphy said: “I’m excited by the range of opportunities we have to use those advantages to create further value for our customers and, in doing so, create value for all of our other stakeholders.”
Off the back of Tesco’s rapidly expanding online business, the retailer has also announced that it is creating 16,000 new permanent jobs, with many of the roles being what started out as temporary jobs at the start of the pandemic converting to permanent roles.
Tescos says that the 90% growth in online sales means that it needs around 10,000 new staff to pick customer orders and 3,000 more delivery drivers. It is also hiring across a range of other roles at its distribution centres, the company says.
Online customer numbers rose from around 600,000 at the start of the pandemic to almost 1.5 million, Tesco says, and the retailer has already added 4,000 new permanent jobs since March. Tesco UK & Ireland chief executive Jason Tarry said: “These new roles will help us continue to meet online demand for the long term.”