Tuesday 10 November 2015

Tesco facing profitability challenges of online retailing and evolving shopper behaviour

At yesterday's CBI Annual Conference, Dave Lewis stressed the need to make their online business of tomorrow as profitable as their offline business of yesterday.

Given that Tesco traditionally delivered 5% net margins and ROCE of 15%+, whilst online delivery has to be losing £15/drop, the scale of the challenge is obvious...

In effect, Tesco have to cope with consumers shopping smaller, nearer and more frequently vs. big, weekly, out-of-town of yesteryear...

This means that Tesco and the other mults, have to consider dealing with the resulting 'large space redundancy' by closing those branches that fail to deliver adequate profits.

In addition, while the retailer appears to be attracting shoppers to its Extra /Superstore outlets, over 75% of these visits are convenience shopping trips. This means that Tesco needs to persuade such shoppers to shop bigger, before they factor the cost of fuel into their out-of-town trips...

Meanwhile, to increase the profitability of their online business, Tesco need to achieve the saturation coverage of Amazon - or intensify their coverage locally - in order to drive down domestic delivery costs. Increasing the delivery charges and attempts to increase online basket-sizes to make sufficient difference are not really options..

Action for suppliers
  • Focus on initiatives that can use out-of-town convenience shopping as a basis for additional ' 'convenient' purchases
  • Spell out the financial impact on basket profitability of each element of the brand's offering
  • Tie your online strategies to Tesco's need to optimise basket size and attract new online users, in your best local areas..
Why not consider increasing the impact of your Tesco strategies by outlining the above  approach to colleague-NAMs? 

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