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Tesco reports robust 9% sales rise

Tesco has today revealed its figures for the 13 weeks ended 30 May 2020 showing total sales in the UK & ROI business increased by 9.2%.

Growth was most marked in online with sales up 48.5% for the quarter as a whole and the rate of growth increasing to nearly 100% by the end of May.

Sales in the convenience business grew by 9.5% including a particularly strong performance from One Stop. The 896 large stores were well-placed to serve customers seeking to shop less frequently and buy more on each visit, with sales up 5.4%.

Throughout this period, we continued to invest in our everyday value proposition including the launch of ‘Aldi Price Match’ in March. As a result of this, in combination with the strength and relevance of our overall proposition, the group saw net switching gains to Tesco from Aldi for the first time in over a decade.

Customers who saw the ‘Aldi Price Match’ campaign were more likely to visit our shops (+6%), rated our brand more highly (NPS +10%) and perceived Tesco as better value (+8%)3. We are extending ‘Aldi Price Match’ to nearly 500 Tesco and branded products and will continue to seek further opportunities to bring even greater everyday value to customers at this challenging time.

As Tesco refocused its offer on availability and everyday low prices, promotional participation reduced from 28% to 14%. The firm also saw major shifts in product and category mix as customers focused more of their purchases on essential items.

In the UK, food sales grew at c.12%, whereas more discretionary categories such as clothing saw sales declines of c.(20)%. Following a sharp initial reduction, sales in general merchandise recovered through the quarter with some categories - toys, home, stationery and electrical – growing strongly year-on-year, as customers increasingly looked to add these items to their weekly shop. Fuel sales, which are excluded from our headline sales performance, declined by c.(50)%.

As a result of improvements in customer perceptions of Tesco across all key areas, including value +5.0pts and quality +3.7pts, the strength of our brand reached its highest level since 2011. Following its focus on ensuring customer safety, 90% of customers believe Tesco stores are a safe place to shop.

Responding to the significantly increased demand for our online offer, it has grown that part of our business as quickly as possible. In just five weeks we doubled our online capacity and are now fulfilling over 1.3 million orders per week.

Across the quarter as a whole, Tesco delivered 12.6 million orders, including to a priority list of 590,000 vulnerable customers. In addition to providing more delivery slots for customers, it has e also increased the availability of the click and collect service, which now represents around a quarter of online orders. As a result of the changes, Tesco has made, our online grocery business has grown from c.9% to over 16% of our total UK sales.

Tesco originally set out a plan to double the capacity of our online business in the medium term, including the development of at least 25 urban fulfilment centres (UFCs). Whilst the construction of the first UFC in West Bromwich Extra was paused in March due to government restrictions, it was able to complete the work in June and the first customer order will be delivered next month.

COVID-19 costs incurred
Tesco's response to COVID-19 has required significant changes to operations which have led to a substantial increase in costs, with the main impact in the UK. The majority of these costs relate to payroll which includes the provision of twelve weeks’ paid leave to 26,000 vulnerable colleagues, in addition to the recruitment of 47,000 temporary colleagues to cover absence and meet increased demand.

The group has also incurred costs in areas such as distribution, where we have needed to re-open previously mothballed distribution centres and property, where we have incurred costs to adapt the store environment and temporarily lost tenant income. The provision of safety-related consumables and personal protective equipment across all of our 3,628 stores in itself results in a charge of c.£(65)m.

In total, our latest estimate of incremental costs for the UK for the full year is c.£(840)m. These costs will be partially mitigated by the UK business rates relief of £532m and a contribution from additional food sales.

Booker
Overall Booker’s sales grew by 6.1% including a c.5% contribution from Best Food Logistics, which was acquired in early March. Booker saw a significant uplift in its retail business with sales growing by 24% partially offset by a significant reduction in customer footfall for our catering business with sales falling by (32)%.

In catering, we are already starting to see our competitive position strengthen and expect to exit the crisis with market share well beyond original levels. Booker has provided invaluable support to our grocery online business including by providing more than 100k additional click and collect slots and directly supplying nearly 18,000 deliveries to over 1,000 care homes.

Dave Lewis, Chief Executive, 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.”