Tesco profits halved to £753m in an “incredibly tough year for customers” as it battled soaring inflation.
But it wasn’t all doom and gloom for Britain’s largest retailer as it posted a 7% jump in annual sales to £66bn including a 3.3% increase at its UK supermarket.
Chief executive Ken Murphy hailed a “strong performances driven by all parts of the group”.
With all grocers grappling with the ongoing cost-of-living crisis and the growing dominance of the German discounters, how has Tesco managed to retain sales and customers?
Competing with the discounters
Murphy insisted that Tesco is “the most competitive its ever been” as shoppers “continue to look for competitive prices and value”.
The supermarket has continued to invest in strengthening its customer proposition by extending its price lock campaign this week until July.
Murphy said that Tesco’s Aldi Price Match has managed to “materially erode” the difference in price to the German discounters.
He said its market-leading price promise has now “removed price as a reason for customers to shop elsewhere” with shoppers choosing Aldi Price Match items in 99% of their baskets.
“We’re at the most price competitive versus all the competitors we’ve ever been”
“We’re really competitive now – shoppers don’t have to worry about paying more when they shop at Tesco,” said Murphy, who admitted that “conditions are favourable right now” for both Aldi and Lidl as consumers feel the pinch and hunt out bargains.
He added that Tesco expects the UK market to be “intensely competitive” throughout the remainder of the year adding, “but we think we’re as well positioned as we can possibly be”.
The power of Clubcard
Currently, over 20 million Brits currently hold a Tesco Clubcard allowing them to receive personalised discounts on selected items as well as rack up points they can redeem later to use on their shopping trips.
Murphy said the retailer is “really thrilled” with the progress it has made on Clubcard Prices.
“It’s been a huge success for us and it has driven fantastic results in terms of not only customers really loving the offers but it’s obviously driven sales penetration of the Clubcard up to 80%.”
The model of offering discounted prices for loyalty card holders has been emulated by many across the sector, most recently Sainsbury’s, which this week unveiled its Nectar Prices scheme that bears more than a passing resemblance to Tesco’s Clubcard Prices.
Tesco has switched Clubcard from a physical to digital scheme over the year, which Murphy said had increased the total number of customers currently engaged with the initiative.
“We can really react to customers fast with it being a digital platform now. I’m excited about the future of Clubcard prices and what it can do for customers,” he said, praising the personalisation of the rewards incentive that give shoppers “relevant offers when they want them.”
READ MORE: Tesco profits dive 50% as inflation bites
Tight supplier relationships
Murphy said the grocer has “worked tirelessly” with its supplier partners to mitigate as much inflation as possible.
“Our suppliers are integral to our business and we are proud of the long-standing partnerships we have built over the years.”
He added that this year, the business achieved the highest level of supplier satisfaction to date in its independent supplier survey, which he called “a testament to the work we have put into building these relationships”.
“We take our responsibility as the industry leader very fiercely and we know that there have been some real pressures on many of our suppliers particularly in agriculture,” which is why Tesco has stepped up its support in response to that.
From extra funding for pig farmers and investing in the dairy market to increasing pricing for chosen vegetable growers, Murphy said the business has worked closely with its suppliers “to provide them with the support they need at this critical time”.
However, at a time when Tesco has been focused on mitigating the impact of inflation, he said it “hasn’t been afraid to have direct conversations when necessary in the interests of our customers”.
“Having transparent and honest conversations is an essential part of working successfully together.”
Tapping into consumer trends
Murphy said consumer trends of cutting back and making food shops last longer will continue throughout the remainder of the year as inflation continues.
Tesco will continue to provide shoppers with “good consistent value” as well as inspiration on how to feed their families affordably.
He touched on the trend of “more staycations” in the summer months.
“We’ve worked very hard at producing a great range of summer products, including an enhanced range of barbecue products, and other things that we believe will be great quality and great value that will help customers enjoy the summer – whether it’s in their back garden or on holiday in Cornwall.”
Speaking on the fast-approaching coronation of King Charles III next month, Murphy confirmed that Tesco has a “great line-up” of products ready for the celebration which he said the business is “very excited about”.
The retailer will be launching a range of bespoke foods and homeware to celebrate the event from coronation-themed sandwiches to cakes and kids toys.
Murphy remained optimistic about the remainder of the year citing the “resilience and agility that we have developed over the last few years” for creating a sustainable competitive advantage that leaves the business well-placed to deal with any challenges that may arise.
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