Tesco “saving to invest” ahead of uncertain times

The British grocery giant Tesco reported Preliminary results for the 2020/2021 fiscal year. Despite the strong sales growth of 8,8% in the UK, Tesco seemed to stress the uncertainty of the times ahead.

The great uncertainty around the war in Ukraine and growing costs of living have a big influence on the grocery sector.

Here are two interesting tidbits highlighted form the Tesco annual results.

Saving in the stores

As the customers start to feel the pinch of the inflation one could assume that the German discounters Aldi and Lidl would become even more competitive. In order to be able to respond to the competitive threat Tesco making things more efficient in the stores.

• Will the availability and size of the service counters be cut in the future? They are after all rather expensive to operate.

• Chekcouts are one human intensive part in the stores. How much can Tesco save by increasing the usage of self service scanners and cashiers?

• Replensihment of the stores certainly is easier during the night. Should some of the online picking also be done during the night?

Overall simplification is certainly important in making Tesco more competitive.

Is this simplification enough to compete with the discounters who are structurally so much more competitive?

Efficiency and capacity for online

Online grocery was the big story of the pandemic, for Tesco also. The company has £6 billion in sales coming from online, which represents 14% of total revenues.

After the rapid growth of online volumes, the next phase will be to make online more efficient.

The efficiencies will be created from

• transitioning picking to Urban Fulfilment Centres (UFC), which can do the picking 4 times faster

  • currently Tesco has four and is about to open 4 new during the next 12 months

• driving more volume to Click & Collect, which currently is a bit less than 20% of online revenues.