Supermarket chain Tesco has seen its share price gain around 1.6% today after the company report a 7.9% rise in the group’s like-for-like sales over the 13 weeks ending May 30. The improvement was even more marked for the UK and Ireland business, whose like-for-like sales rose 8.2% to £12.2 billion. Group sales came in at £13.4 billion.
The coronavirus crisis lockdown period saw shoppers making almost a third fewer groceries shopping trips than normal but was compensated for by a sharp increase of 64% in the amount of goods purchased. A surge in the number of online orders and picking up customers from German budget rival Aldi were also reported as factors in sales growth over the 13-week period.
Clothing and general merchandise sales were down over the period but increases in sales of groceries more than compensated as shoppers increased purchases due to eating all of their meals at home. Online sales figures are expected to surge to £5.5 billion this year compared to £3.3 billion last year. Tesco has successfully managed to scale its online capacity quickly to deal with online demand, more than doubling delivery slots to 1.3 million a week from 600,000 pre-lockdown.
The impressive ramp up of online orders capacity was, detailed outgoing chief executive Dave Lewis, achieved over just 5 weeks and at a total cost of a modest £4 million. He cautioned that online deliveries are still less profitable than in-store shopping but that the economies of scale now being achieved are making the economics “more neutral than in the past”. Bigger online shops and cost-covering delivery charges being introduced are having a positive impact.
Online orders now account for roughly 16% of all of Tesco’s sales, compared to just 9% last year. While the shift to more online orders was catalysed by the coronavirus pandemic, analysts believe a significant part of the growth will prove long term.
Many customers, especially those of older demographics more resistant to the change, have made their first online orders over the past few months. But they have quickly become accustomed to the convenience and say they now plan to continue to use the technology for at least some of their regular groceries shopping.
Mr Lewis also praised the impact of a price-matching promised launched in March that saw the company commit to offering prices at least in line with those of budget competitor Aldi. It has led to the first net switch of shoppers from Aldi to Tesco in 10 years.
“Customers have appreciated the safety of our stores and see through the misleading comparisons of their baskets. They now know they can get Tesco quality at Aldi prices”.
Mr Lewis has been the Tesco chief executive since 2014 and is credited from turning the supermarket around from an accounting and more general crisis. It had been losing customers to rivals, especially German discounters Lidl and Aldi, at an alarming rate over the years prior to Mr Lewis taking the helm.
There is, however, a risk his impending departure will see the positivity of his reign overshadowed. Investors are unhappy that he has been awarded a major bonus taking his overall package to £6.4 million. The bonus criteria were only met after online specialists Ocado were removed from a peers ranking methodology.
The company’s annual meeting today is expected to feature a shareholder revolt over the reward. It would be a shame if Mr Lewis were to now leave under a cloud. With Tesco currently worth £10 billion more than the company was when he took over, it is hard to argue against the value he has delivered for shareholders.
Mr Lewis is to be succeeded as the Tesco chief executive by 54-year-old Ken Murphy, previously a director at Walgreen Boots Alliance. Mr Murphy will assume the role as of October 1st.
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