Here’s How Tesco Is Meeting the Challenges of the Permacrisis

There have been so many challenges sent our way over the last few years that a new term has entered the lexicon to describe this almost continues flow from one crisis to another – permacrisis.

Starting with the global COVID-19 crisis, then the Russian invasion of Ukraine, rising inflation, the cost-of-living crisis, the energy crisis, and many more besides have all conspired to put extreme pressure on supply chains, households tying to make ends meet, businesses trying to fulfil orders, and almost every other corner of society.

Naturally, supermarkets find themselves at the centre of all these issues. As providers of multiple essential products and services such as groceries, fuel, household items, and more, the nation’s supermarket brands have found themselves in an almost constant state of evolution since the onset of the COVID-19 pandemic.

Tesco

As the UK’s largest supermarket brand – and largest retailer period – Tesco has been hip deep in these challenges since their onset. The company recently went on the record with the folks at data platform providers, Dunnhumby to discuss how it worked to support its customers during the worst days of the COVID-19 crisis.

At the onset of the pandemic, Tesco had around 350 large stores, picking and delivering across the country; six fulfilment centres surrounding the M25, designed predominantly to serve people in Central and Greater London, and a fleet of around 4,000 delivery vans, in addition to a well-developed click and collect operation. This gave the supermarket capacity to fulfil 650,000 orders per week on average.

"This was the position we were in when, in March 2020, we started to see the impact of the pandemic,” said Tesco. "Immediately, the business set out four priorities: to provide food for all, safety for everyone, support for colleagues and support for communities. Our online team were vital to delivering these priorities and we held urgent discussions about how we could best respond to safely manage the huge increase in demand for online shopping, while also mitigating panic buying and prioritising those who needed to shield at home.”

Tesco responded by hiring 16,000 temporary workers to work specifically in the online department, started the picking shifts much earlier in the morning (2am), opened several new click and collect locations. Tesco also introduced two new sites for workers at the Nightingale Hospital and a program for NHS staff to allow them to shop early and before other customers and worked with government agencies and DEFRA to develop a programme for vulnerable customers and prioritise deliveries according to need.

"Alongside a number of other projects, these changes enabled us to increase our online order capacity to 1.6m per week and provide almost 900,000 vulnerable customers with priority access to home delivery services. This was the equivalent of adding as much capacity as our closest competitor had in total.”

Post-COVID

The next big challenge facing Tesco is the UK cost-of-living crisis which has seen energy prices and inflations drive household bills through the roof and left many people throughout the country struggling to cover their most basic outgoings.

Tesco has noticed the effect of this crisis on its numbers and has warned that its end of year results will likely be lower than expected as customers turn from big name stores in favour of discount retailers such as Lidl and Aldi. The latest reports coming out of Tesco show online sales dropping by as much as 11% as a result of this trend.

"For the six-month period ending 27 August, Tesco posted a 10% fall in underlying retail operating profits to £1.25bn, despite group sales (excluding fuel) rising 3.1% to £28.2bn,” reports Charged Retail. "Despite the drop in profits, sales increased by 6.7% to £32.5bn as the supermarket giant pledged to "support customers through relentless focus on value.” However, online like-for-like sales declined by 11.3%, with order volumes falling by 10.5% as shoppers continue to return to more traditional shopping behaviours. Tesco also reported a fall in pre-tax profits to £413m, down 64% from £1,143m in the same period last year.”

Tesco still has a strong market position, even taking these figures into account, but knows it needs to work to provide customers with value in their grocery shop, if it wants to retain them during the crisis. Profitability will also be affected when it comes to its online shopping business as small baskets cost the same to deliver as larger shops.

Final Thoughts

Along with the rest of the supermarket sector, Tesco has some significant challenges to meet as the cost-of-living crisis continues to bite. If it can bring the same innovative spirit it brought to the table during the pandemic, we’re confident Tesco can avoid haemorrhaging too many customers to its discount rivals.

The cost-of-living crisis is sure to be part of the conversation at eTail UK 2023, being held in April, at the QEII Conference Centre, London, UK.

Download the agenda today for more information and insights.