Following today’s release of Tesco Q1 figures for 2020/21,

Thomas Brereton, Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘With non-retail food options cut off, consumers have shifted spend to supermarkets at an unprecedented level over the past three months, and, with its national prominence, Tesco has been the first port of call for many. As a result, sales (UK & ROI incl. Booker, ex. fuel, ex. VAT) have increased of 9.4% to £12.2bn for the 13 weeks covered. But while almost all channels saw a marked increase over the period (including a 13.7% increase in large store l-f-l sales in the March), Tesco’s results show it is clearly proudest of its rapid rise in online growth, being significantly quicker than competitors (including Ocado, which it names directly in comparison) to upscale online capabilities in the face of soaring demand by increasing orders per week to 1.3m from 600,000 this time last year.

In many ways, Tesco has spent the last five years unknowingly preparing for COVID-19. Its concentration on improving profits meant it has withdrawn from its non-food UK proposition, as well as more recently selling off international divisions in Poland and Asia (although finalisation expected in H2) in a bid to protect the UK food mothership. 

Somewhat unfortunately for investors, Tesco forecasts that these sales will not benefit retail operating profit; given the additional costs incurred over the period (predominantly payroll costs for new employees), it expects retail EBIT growth for FY20/21 to be broadly in line with the prior year.  However, the slick supply chain that Tesco had developed prior to coronavirus will again put it in good stead against competitors that had prioritised investment in other areas.

And these benefits will extend past the foreseeable length of the outbreak. The UK is almost certain to enter a recession that will take its toll on consumer wallets, and for the next 18 months or so reducing grocery expenditure will be a priority for many. With that in mind, providing value for money will be crucial for success for both value and mid-market players, and Tesco appears to be gearing up for an all-out price war with the discounters that have eaten away at its market share over the past decade. This applies in particular to Aldi, against which Tesco are hoping to turn the tide via an extension of its successful “Aldi Price Match” scheme to 500 products, a scheme which (Tesco claim) has resulted net switching gains from Aldi for the first time in a decade.”