Online sales have boosted the grocer’s revenue, seeing increases in customers and spending
Tesco sales soar amid lockdown
- Group like for like sales rose by 8%, with growth coming predominately from online segment which increased by 48.5% for the quarter
- Group adapted quickly to online shopping surge, doubling capacity in just five weeks and pushing online sales from 9% to 16% of UK total sales
- Shoppers had a lower frequency of visits but higher transaction size, with visits down roughly down 32% and transaction volumes up 64%
- Recommendation: As the group remains in a competitive landscape, we continue to keep the shares as a ‘Hold’ for now for investors willing to accept low to medium risk
Tesco’s total sales in the 13 weeks to May 30th rose by 9% in the UK & ROI. Predominate growth came from the online segment which increased by 48.5% for the quarter as consumers looked to shift their shopping online to avoid unnecessary trips outside of their homes. The group have managed to adapt this segment of their business quickly, doubling capacity to meet demand in just five weeks and pushing online sales from 9% to 16% of UK total sales. The consumer theme picked up within the update highlights a lower frequency of visits but higher transaction size, with visits down roughly 32% and transaction volumes up 64%. Booker has also seemed to fare well with overall sales up 6.1% displaying a significant uplift in its retail segment which saw growth of 24%, helping to offset the unsurprising under-performance from the catering side. Tesco Bank also inevitably suffered and saw a 26.5% decrease in sales as activity in banking and money services reduced.
The introduction of the ‘Aldi Price Match’ which was launched in March has seen consumer net switching gains from Aldi for the first time in over a decade. Customers perceived the ‘Tesco’ brand to represent better quality, with 6% more likely to visit a Tesco store as a result. This scheme is being extended to nearly 500 Tesco and branded products in an effort to bring better value for customers in this tricky time.
The last few months have arguably been one of the trickiest periods for the supermarket to navigate. However, it appears they have adapted well. Obviously, this has come at a cost, with most of the weight stemming from payroll as the latest estimate for incremental costs stand at roughly £840m for the year, some of which will be partially offset by the business rate relief of £532m. This will also be offset by the higher contribution of food sales and, with the sale of Malaysia & Thailand scheduled to be completed in the second half of the year, this should help bolster the group’s balance sheet too.
Despite the obvious difficulties at present, I think Tesco seem relatively well positioned. It was inevitable business models were going to be challenged but I feel Tesco’s price-match and Booker exposure will stand them in good stead as customers start to return to their normal routines whilst in the search for good value. The battle between the discount retailers has been rumbling for a long time, and this crisis potentially presents the opportunity for Tesco to start the fight back.
Furthermore, the progress and pace of adaptation in regard to their online segment has been remarkable. It has always been a question whether the consumer may permanently shift shopping habits online post-crisis, and Tesco have shown in either scenario they are capable of meeting demand which should help encourage investors.As the group remain in a competitive landscape, we continue to keep the shares as a ‘HOLD’ for now for investors willing to accept low to medium risk.
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