Tesco has reported a huge increase in sales for the 13 weeks ending 30th May 2020 as it responded impressively to the unprecedented challenges of the COVID-19 pandemic.
- Group sales: +8.0% (+7.9% LFL)
- UK sales: +9.1% (+8.7% LFL) inc. online +48.5%
- ROI sales: +19.7% (+20.5% LFL) inc. online +50.9%
- Booker: +6.1% (+0.6% LFL) inc. online +106.3%
- Central Europe exc. Poland: +3.3% (+3.9% LFL)
Embedded advantages across channels
Commenting on developments in his last trading statement as chief executive Dave Lewis said: “Through a very challenging period for everyone, Tesco colleagues have gone above and beyond, and I’m extremely proud of what they’ve achieved. Their selfless efforts, combined with our embedded strategic advantages in stores and online, have helped to ensure that everyone can get the food they need in a safe environment.
In just five weeks, we doubled our online capacity to help support our most vulnerable customers and transformed our stores with extensive social distancing measures so that everyone who was able to shop in store could do so safely.
The costs of doing this have been significant and only partly offset by business rates relief and increased volume. We see the balance as an investment in supporting our customers at a time when they need it most.”
Online drives growth in the UK
Online is the most striking contributor to Tesco's dramatic UK sales growth in the UK, with sales up 48.5% for the period and almost 100% by the end of May, as Tesco scaled up capacity from 600,000 to over 1.2m slots per week to meet soaring demand. Across the quarter, 12.6m deliveries were fulfilled at limited additional cost, with click & collect's share of these orders increasing to around 25%. This surge in demand has lifted online's share of grocery from 9% to 16% of UK sales. One downside to these trading pressures is a delay to the opening of Tesco's first urban fulfilment centre at West Bromwich Extra, but this is now set to open next month. The accelerated shift towards online builds Tesco confidence in the potential of its plan to build at least 25 of these centres over the next three years.
Strong growth also through stores
Convenience grew +9.5%, helped by very strong growth through One Stop. Large stores also grew strongly, particularly at the start of the lockdown, with sales up 5.4% over the quarter as shoppers chose to consolidate shopping into fewer full trolley trips. Sales through discount fascia Jack's were another highlight with 62% LFL growth and all stores now achieving sales of over £100,000/week.
Booker's sales were up by 6.1%, lifted by a c.5% contribution from newly acquired Best Food Logistics and strong growth to retail customers offsetting declines to catering businesses. For more insight see separate story here.
'Aldi Price Match' drives switching gains
Tesco noted how it saw net switching gains from Aldi for the first time in over a decade as shoppers responded positively to the new Aldi Price Match mechanic, launched just before of the pandemic outbreak. This initiative is part of Tesco's broader push to improve its value positioning and availability by refocusing on EDLP and cut back on promotions - participation halved over the period from 28% to 14%. Tesco was also encouraged by the initial pre-Covid uptake of Clubcard Plus subscription scheme, which was three times pre-launch expectations.
Shifting category mix
UK food sales grew 12%, more than offsetting declines in discretionary categories as customers focused on purchases of essential items. That said, having fallen sharply at the start of the quarter, some general categories (inc. toys, home, electrical and stationery) rebounded strongly while non-food retailers were closed.
- Sales in Ireland jumped 19.7% driven by a higher level of switching in of foodservice sales to the retail sector
- Sales in Central Europe (exc. Poland) increased 3.3% with high demand for online groceries and a shift in the sales mix to essential items
- The divestment of Tesco Poland to Netto owner Salling Group is expected to complete by the end of the year
- The completion of the sale of Tesco Thailand and Malaysia to CP Group is expected in H2
Tesco currently expects retail operating profit to be at a similar level to 2019/20 on a continuing operations basis. Its latest estimate of the full year costs arising from the pandemic in the UK is £840m (towards the top end of its £585m-£995m guidance issued in March). These costs will be partially mitigated by business rates relief of £532m and a contribution from additional food sales.
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