Tesco CEE faced a small decline in sales in 2016 and expects marginal growth in 2017. Tesco's CEO for Central Europe, Matt Simister, announced that the retailer will tackle this flat performance by building on store productivity across the region. The Tesco CEE initiatives will tighten its assortment, reduce the sizes of its large format stores, offer more relevant SKUs in its small formats, and engage with supply chain for a better fresh food offer and greater innovation.
Store size optimisation of the large format units
Simister believes that hypermarkets in the CEE face a challenging environment, as shoppers increasingly lean towards smaller purchases and an increased frequency of store visits. Simister expects to review store profitability, reduce unit space to lower operational costs, and raise productivity of sales areas. The CEO of Tesco Central Europe stated that large format unit spaces will be reduced to an optimum size of 7,000 sq. m., but can be as small as 5,000 sq. m. Store size optimisation will lower overhead costs, due to smaller shop area maintenance, staffing expenditure as employees are spread across various stores, and energy spend, for example, through reduced refrigeration areas.
Range rationalisation supports store optimisation
Tesco CEE wants to raise sales area productivity by stocking assortments that fit the needs of store’s local catchment. Space initially used for general merchandise is being leased to third party retailers – such as Intersport and H&M. The inclusion of branded non-grocery retailers widens shopper missions and can drive traffic. To overcome restrictions of long term agreements with third party leaseholders, Tesco will offer tailor-made short-term lease agreements. In the UK Tesco opted for range rationalisation without store size reduction or leasing to third party retailers. This is unlike the CEE reoperations where range rationalisation supports store optimisation, with some categories have seen their number of SKUs reduced by 30% to 40%, according to Simister. The retailer will limit changes in category assortments so shoppers have some degree of predictability in what they find in their local store.
Emphasis on Finest and Free From range
Tesco CEE wants to develop its Finest range to maintain a high private label share in the region, offer premium lines, and introduce innovative products. Across central Europe, Tesco actively promotes the Finest assortment with dedicated aisles or islands, with more space and prominent instore locations. Tesco looks to strengthen its category sales by placing the most relevant SKUs on its shelves, such as the Free From range, which is a growing consumer trend across central Europe.
Centralised distribution for the region
Tesco opened one of its largest distribution centres at 146,000 sq. m., west of Slovakia’s capital. The centre will store durable food, consumer goods and clothing to distribute across Slovakia, Poland, Hungary and the Czech Republic. The direct benefit of this centralisation is to reduce overheads and gain economies of scale with buying and procurement for the business. By centralising regional distribution Tesco expects to introduce more relevant assortments and better availability. The retailer will do so by stocking more product ranges in the distribution centre and deliver the most relevant SKUs to each store with precise quantities. This is especially for smaller stores where ranges are tighter and inventory storage space is limited.
Enhanced supplier relationship
Following the success of the Tesco Supplier Network online platform, in the UK since 2015, the retailer has introduced an enhanced version for suppliers for its CEE operations. The interactive supplier platform was rolled out to interact with suppliers across Poland, Czech Republic, Slovakia, Hungary and neighbouring markets. The platform’s goal is to improve cooperation with suppliers, inspire innovation, and encourage local sourcing. Suppliers will also share experiences and challenges of sustainable production and the delivery of quality, affordable products.
Tesco CEE optimises online with Click & Collect in hypermarkets
Tesco offers online ordering and delivery service to its shoppers across central Europe, but is generally restricted to the capital and top tier cities. The retailer looks to enhance the service with the offer of Click & Collect services as part of a connected operation at its hypermarkets. Tesco in the Czech Republic has looked to take the load off shoppers’ basket by promoting online delivery for heavy or large-sized items.
No more ‘buy one get one free’ to reduce food waste
Tesco will end ‘buy one get one free’ promotions as part of its ‘reducing food waste’ commitment. In September 2017, the retailer announced a joint commitment with its largest food suppliers to reduce food waste in the supply chain and in shopper households. Tesco expects the removal of ‘buy one get one free’ promotions to lower household waste along with the promotion of imperfectly shaped fruits and vegetables, and faster delivery of fresh food in the supply chain that can add up to two days of freshness.
For more insight on trading with Tesco in Central Europe click here to read our store visit report in the Czech Republic and Hungary or here to sign up for our newsletter.
Amin Alkhatib, Retail Analyst CEE, IGD International: based in London, UK, Amin is responsible for shaping IGD's research in Central and Eastern Europe; as well as contributing to IGD's broader European research programme. Follow me on Twitter @Amin_IGD for further insight on the region’s retail landscape.