Three Learnings from Tesco’s First-Quarter Update

1. Tesco Had a “Good Crisis” Online

Tesco’s multichannel model, with a substantial online grocery business built on manual picking in regular supermarkets and dark stores, proved highly resilient as online demand surged. Tesco was able to scale up the number of weekly delivery slots from around 600,000 to 1.3 million in around 5 weeks. This was in contrast to highly automated, fixed-capacity online models, which found themselves constrained when demand jumped.

Source: Company reports

2. Tesco UK Sales Mix Revealed the Shape of Lockdown Demand

Reporting on the impacts of the coronavirus crisis by major category, Tesco provided a rare look at its UK sales mix (shown below). This showed strong growth for packaged food, while fresh food grew strongly (at 7.6% year over year) but slightly underpaced the 8.7% growth in total UK comparable sales. Tesco saw a decline in demand for clothing, where comparable sales were down by almost one-fifth, and a more modest slowdown in general merchandise.

Assuming clothing’s 2.6% share of Tesco UK sales in the first quarter of last year was representative of FY20 overall, Tesco UK and Ireland will have turned over approximately £1.2 billion in clothing sales in the year ended February 2020. For context, this compares to £3.2 billion in UK clothing and home sales at apparel market leader Marks & Spencer in the year ended March 2020.

Source: Company reports

3. Tesco Confirmed a Reversal of the Shift to Discount Formats

Tesco management noted the reversal of the multiyear trend toward discount formats—or at least Aldi. Tesco saw a sharp increase in shoppers switching from smaller-store, limited-line Aldi to full-range Tesco, and this coincided with shoppers looking to consolidate their grocery shops into fewer trips to supermarkets.

This week, data from Kantar Worldpanel confirmed the trend of Aldi underpacing larger incumbents: In the 12 weeks ended June 14, Aldi grew sales by 8.0% versus 12.1% at Tesco, 10.2% at Sainsbury’s and 10.5% at Morrisons, according to Kantar.

Source: Company reports