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Market growth was 1.4% in the 12 weeks to 16 June 2019, according to the latest results from Kantar. Performance has slowed compared to this time last year, when growth was 2.1%. We look at the factors influencing this and key retailers' performance.

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Tesco has set out new detail on its strategic priorities at a Capital Markets Day. In a wide ranging briefing structured around its 'Three Pillars' of product, channels and customers, Tesco presented new ideas to grow its business and updated on progress against current priorities. It also said that going forward it will prioritise total sales growth over LFL growth in its continuing drive to rebuild its profit margins. Below we highlight some of the main points.

Differentiation through product

Growing own brand will play a key part in Tesco's overall sales and profits ambitions. Tesco highlighted the £1bn of sales achieved within 12 months of their launch by exclusive private label brands including 'Exclusively at Tesco' and Farm Brands, pitched to undercut equivalent lines at Aldi and Lidl. Following its success with Wicked Kitchen and exclusive products, Tesco is keen to develop its offer further, leveraging its supplier partnerships. A new plant-based brand will be launched soon.

Experimentation through Jack's

Tesco revealed that its first nine Jack's stores have delivered sales of £24m to date and that learnings from the discount fascia are being introduced more widely across the group. Tesco continues to experiment with the Jack's format. At its latest opening in Rawtenstall, it has taken inspiration from Brazilian cash and carry format Atacadão as well as Booker to create a store more geared to bulk purchases.

A tailored approach to channels

Tesco will step up actions to reduce the cost to serve. At large stores Tesco plans to repurpose a further 4m sq ft of space globally, building on the 4m sq ft of space already removed. It also aims to achieve £300m of savings from improving its operating model and £64m from a more tailored counters proposition. For small stores, Tesco will continue to add new space while also targeting cost reductions. A trial at 20 Express stores achieved a 20% cut in operating costs. Tesco also presented the idea of a Finest store, a concept it believed could deliver an operating profit margin of 7%, around twice the current level. These will are likely to build on learnings from the Finest stores it has already opened at NTUC Fairprice supermarkets in Singapore.

Online micro-fulfilment centres

Tesco also spoke about installing automated micro-fulfilment centres into surplus space in some of its largest stores. Its first 'Urban Fulfilment Centre' for online grocery will open within a year. Delivery by robot is another opportunity with Tesco continuing to work with Starship Technologies.

Accelerating cashless across checkouts

Tesco will work to make more transactions digital. Reducing the 49% of transactions that are currently paid with cash could save the business £68m. Tesco has already made significant progress towards this objective through its Tesco Pay+ app and trials of its mobile scan pay and go app at Tesco Welwyn Express and Jack's stores.

Innovating with Clubcard

Tesco has recently launched Clubcard Prices to celebrate its centenary, offering personalised discounts to holders of the loyalty card. This could be expanded into a subscription product that offers price discounts in stores as well as points.

In the nine months since its launch in September 2018, Tesco has opened nine Jack’s stores. As the retailer nears critical mass for its trial of 10-15 stores, we share our view on developments so far.

Buy more, save more: flexing the Jack’s format for bulk shopping   

In a similar approach taken by Sainsbury’s during its short-lived joint venture with Netto, Tesco is trialling Jack’s in a variety of locations. This has led to a high degree of format flexing across the network. Its latest opening is Rawtenstall is a marked departure from other stores we’ve visited, and around three times the size of the first Chatteris store.

Its “buy more, save more” slogan is key point of difference, boldy written on the front of the store and on each aisle-end. Shoppers pay less per unit by buying in bulk, with the unit price displayed on red stickers. This mechanic applies to a wide selection of Jack’s own brands and market-leading brands.

Larger pack sizes are available for many branded products, prominently displays at the end of the aisles. Cases of products are available on the shelf,  easy to get to the checkout on flatbed trolleys.

Beer, wine, spirits and soft drinks near the front of the store set a different tone for shoppers on entering this store. This compares to bakery and fresh produce first in flow, as we’ve seen in other Jack’s. The Tesco supermarket that previously fillled the site has likely influenced this layout.

Source: IGD Research

Jack’s is “part of the Tesco Family” – but how closely are they related?

Jack’s own brand range is one of the features Tesco claimed to be “unique” to the format, helping distinguish it from other Tesco stores. The Fresh Five produce deal, and When Its Gone Its Gone (WIGIG) deals on general merchandise are other standout Jack’s features. They are also the signature promotions of leading food discounters Aldi (Super Six and Specialbuys) and Lidl (Pick of the Week).

These Jack’s identifiers are now creeping into the main estate. In May a small selection of Jack’s products appeared down the Tesco promotional power aisle. For price sensisitve shoppers, these offer great value, such as £1.07 for 750g of breakfast cereal. The move also offers a welcome boost in volume for lines that are currently only sold in nine stores. This will help Tesco understand the national demand for Jack’s products. But as part of an own brand strategy, adding Jack’s to the mix after the entire 10,000 SKU range has been revamped, including the launch of the “Exclusively at Tesco” entry tier, was a surprising move. It raises a lot of questions: could Jack’s be Tesco’s fourth own brand tier? Will Tesco products ever go into Jack’s? From a shopper perspective, does it dilute the differences between Jack’s and Tesco (where they get the convenience of a bigger range, Clubcard points, and more )?

Fresh Five has also recently become embedded in Tesco’s produce promotional cycle, a tactic that only usually appears at Tesco at Christmas. While Jack’s Fresh Five and Tesco’s Fresh Five include different products and prices, they play a prominent part of the value and freshness messaging for both.

New general merchandise format trials have also seen Tesco introduce WIGIG fixtures similar to those found in Jack’s. This will help drive footfall, excitement and impulse purchasing for the category and the store.

Source: IGD Research

Mission-possible: increasing competition in food-to-go and meal for tonight  

While Jack’s food-to-go and meal inspiration fixtures add complexity to the efficiency-focused model, they are a necessity if Jack’s is to compete alongside Aldi and Lidl. Both discounters are developing their propositions in these areas. For example, Aldi has food-to-go and meal for tonight fixtures in stores, and its award-winning premium ready meals appeal to an ever widening flavour palette.

At Jack’s, displays combine chilled and ambient groceries for themes like Big Night, a convenient solution and a break from the value messaging.

Coffee machines adjacent to the in-store bakeries, as well as packaged sandwiches, drinks and snacks also appeal to shoppers on the go. Tesco’s expertise in these areas are a strong benefit for the Jack’s chain.

Source: IGD Research

Want to know more?

Retail Analysis subscribers can download our Jack’s store report, and latest Tesco Strategic Outlook report

Get in touch with our analysts for more insight on UK discount: [email protected]

Tesco has reported solid results for the 13 weeks ending 25th May 2019 with strong trading over Easter, through Booker and online as it began celebrating its centenary year.

Key figures

  • Group sales: +0.4% (+0.2% LFL)
  • UK and ROI total sales: +1.3% (+1.3% LFL)
  • UK -0.4% total sales (+0.4% LFL)
  • Central Europe -7.9% (-4.9% LFL)
  • Asia +2.6% (+0.1% LFL)

2019 off to a good start

Tesco growth has slowed from its full year 2018/19 results when group LFL increased +1.4%, with Tesco UK achieving at +1.7% LFL and Booker +11.1%. However, the Q1 numbers are broadly in line with expectations given the current negative shopper sentiment and +2.1% LFL comparative from a year ago which was boosted by warmer than ususal weather.

Chief executive Dave Lewis has said;

"We have had a strong start to the year, growing ahead of the UK market on both a volume and value basis. Our customer offer is more competitive than ever, with a wider choice of our 'Exclusively at Tesco' products now available in more stores, helping to drive more than 10% sales growth across the range. Following a particularly good Easter, our '100 Years of Great Value' event in May proved very popular with more than 1.5 m customers benefitting from discounted Clubcard Prices."

Booker boosts results

Booker remains an important driver behind the growth, with sales up 12.4% (+3.1% LFL) to £1.5bn. Tesco has reported shoppers are responding well to the benefits of  'Joining Forces' and the improvement in the fresh food offer. 100 new lines have recently been added including fresh flowers and drinks.

Ireland performs ahead of UK

In Ireland total sales rose 2.7% (+1.3% LFL) with growth strongest from the chilled and grocery categories. The retailer also saw a positive impact from the increased marketing on 'you won't pay more' campaign. 

Weather slows growth

Tesco had a strong Easter across all formats. This included the biggest ever sales day for small stores on Easter Sunday. Core food performed well thpugh weather dependent categories such as clothing and gardening furniture struggled. This was a big change from last year when warmer weather drove sales. Q1 last year also saw the build up to the World Cup and a royal wedding, creating new reasons to shop. 

Exclusively at Tesco

Due to investment in 'Exclusively at Tesco' there was an uplift of +10% sales, helped by an increase in the range, to around 430 SKUs. Tesco has reported a very positive reaction to this expansion and estimates 84% of all baskets now include at least one 'Exclusively at Tesco' product.

Surge in online grocery

Online grocery sales were up 7% year-on-year in this quarter, far ahead of the 2.8% achieved in 2018/19. Click and collect performed well, with orders increasing 10%. The retailer has made positive changes to its operations which have had good customer feedback.

Mixed performance in Central Europe

Tesco has seen customer ratings on price satisfaction improving, driven by its 'Star Lines' initiative. However sales are declining in Poland, impacted by store closures and two fewer trading days. This year's significantly cooler weather has also had a negative effect on results.

Religious events drive positive Asia sales

Sales increased by 7.3% in actual rates and 2.6% at constant rates. A stronger customer offer contributed to a better performance across all formats and categories. Thailand performed particularly well with strong growth in the Bangkok area. The Thai new year festival Songkran drove performance as shoppers were very offer focused. Malaysia also performed well, particularly in clothing.

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Kantar market shares are generated using Kantar Worldpanel’s till-roll scanning methodology and extrapolated using a sample of 30,000 households. Figures are calculated over a rolling 12 week period and include VAT.
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