Tesco delivered a surge in half-year profits this morning as the grocer’s turnaround efforts built further momentum.
The supermarket giant’s pre-tax profit rocketed 691.5% on a statutory basis to £562m, as like-for-likes climbed 2.2% in its core UK business.
But aside from the stellar growth in both its top and bottom lines, what else did we learn from Tesco’s interim results?
Innovating in product
Tesco is investing plenty of time and money into product innovation, across both food and general merchandise, providing more reasons for shoppers to visit its stores.
The supermarket said today that it launched 807 new lines during its first half, including mini avocados, fun-shaped vegetables for children and locally produced beers.
In non-food, Tesco has also unveiled two new private label brands: its Go Cook kitchenware range including knives, utensils and cookware; and the Fox & Ivy homewares proposition. Both were showcased at its media briefing this morning.
Tesco may have been given the confidence to invest further in own-label ventures by the success of its entry-level Farms brands.
The seven separate brands across fresh fruit, veg, meat and poultry were launched in 2016 to better combat the threat of the discounters, and now appear in 70% of customer baskets.
Indeed, the grocer said its own-label sales jumped 4.6% year-on-year and now account for almost 50% of its total sales.
Trialling cashless stores
Tesco is innovating in payment as well as product.
It might appear that Tesco is behind the curve as the likes of Sainsbury’s and Amazon have pressed ahead with pilots of checkout-less grocery stores, but when asked about the trials being undertaken by those particular rivals, Tesco boss Lewis said: “We’ve been doing it for a while. Nothing to announce.
“When we are at a place when we think we’ve got something that we want to offer to all customers, we’ll launch it and we’ll communicate it”
Dave Lewis, Tesco
“We test a whole lot. In Tesco’s history, have we had cashless shops? Yes.
“We are trialling lots and lots and lots of things, but we’ll only talk about it when we’ve done it everywhere,” Lewis insisted.
“I’ve got 3,600 shops. When we are at a place when we think we’ve got something that we want to offer to all customers, we’ll launch it and we’ll communicate it.
“But that sort of testing? There is loads of it.”
Building longer-term supply partnerships
Since Lewis took the top job in September 2014, Tesco has embarked on a major shift in the way it works with its 8,000 suppliers.
Instead of short-termism to drive commercial gains, the grocer is now looking to build longer-term relationships with its supply partners and drive more volume through the business.
“Lewis said that 95 of its suppliers saw their sales volumes to Tesco surge more than 100% in the year to May 2017”
Figures it shared with the media today demonstrated the impact that this “change in trading approach” has had.
Lewis said that 95 of its suppliers saw their sales volumes to Tesco surge more than 100% in the year to May 2017.
A further 185 partners enjoyed volume growth of more than 50% and another 330 reported that the volume of goods sold to Tesco increased at least 25%.
Lewis explained: “There was a period of time at Tesco where the negotiation strategy was to have more and more and more suppliers and to move volume around on a commercial negotiation basis.
“We chose to change that when I came in – to look for a smaller number of suppliers on a longer term and actually try and improve the business together.
“That’s what we’ve been doing with both small and large suppliers.”
‘Air rights’ deals have lift off
Almost a year ago, in November 2016, Tesco laid out its strategic plans to analysts and the media during a visit to its Welwyn Garden City headquarters.
As part of that presentation, finance boss Alan Stewart revealed that Britain’s biggest retailer was to start selling ‘air rights’ above its stores, allowing it to strike partnerships with property developers who would revamp specific supermarkets and add flats above those shops.
“Tesco said its released a total of £175m in the half year and had its eye on further ‘air rights’ deals to unlock more cash”
Today, Tesco lifted the lid on its first successful ‘air rights’ deal in Hackney, which netted the business a £44m profit.
Another strategic property move, to regain freehold ownership of seven large stores, resulted in a net gain of £21m.
Although it played its cards close to its chest on the future reshaping of its property portfolio, Tesco said its released a total of £175m in the half year and had its eye on further ‘air rights’ deals to unlock more cash.
No more job losses
Despite its cost-cutting drive, Lewis insisted there would be no more job cuts at Tesco in the second half of its current financial year.
Back in June, the supermarket giant revealed plans to close its call centre in Cardiff, which employs 1,100 staff, and consolidate those operations into an existing call centre in Dundee.
“We don’t envisage any more [job cuts] in the back half of this year in terms of people”
And just days later, Tesco said it was axing 1,200 roles across its central operations in Welwyn Garden City and Hatfield.
When asked today about the potential for a further reduction in headcount, Lewis admitted: “If you look across the totality, the headcount has come down and that’s because of the restructuring there has been in head office and the call centre changes.”
But he added: “In stores, we’ve been increasing the amount of hours that are spent serving customers and we don’t envisage any more [job cuts] in the back half of this year in terms of people.”