Tesco expects some of the changes driven by the coronavirus pandemic to begin reversing in the months ahead as a period of rapid sales growth combined with elevated costs draws to a close.
Ken Murphy, chief executive of the UK’s largest supermarket group, said there were already signs that as restrictions eased and hospitality reopened, customer behaviour was reverting to pre-pandemic norms. “We’re definitely seeing higher frequency shopping and smaller basket sizes and a shift back to the weekend days being our peak shopping days.”
But he added that demand for eating at home remained above pre-pandemic levels. “Home baking has come back from its peak but there is evidence that cooking from scratch could be here to stay,” Murphy said, pointing out that sales of baking and other ingredients were still up a fifth on pre-pandemic levels.
Sales of beer, wine and spirits, which boomed during lockdown, have also “stayed remarkably strong”, helped by recent warm weather and the start of the European football championships.
Clothing and general merchandise sales, which plunged during the first lockdown, have recovered strongly, but fuel sales remain 15 per cent below pre-pandemic levels.
Overall, Tesco’s retail sales, which strip out wholesale and banking revenue, rose just 1 per cent in the first quarter as the group starts to run into stiffer comparative sales figures from the beginning of the pandemic last year.
In the UK, by far Tesco’s largest market, sales were up 0.5 per cent on the same period last year — which coincided with the start of lockdown — and 9.3 per cent higher than 2019.
Tesco’s new finance chief, Imran Nawaz, said the group’s base assumption was that overall sales would be “a few per cent down on last year”.
On the key question of online sales, Murphy said it was too early to say how much of the surge in uptake seen during the pandemic would endure. “There’s another couple of stages to go. When there’s a complete lifting of restrictions we think we’ll see another little step down and if foreign travel is permitted they’ll be another step down then.”
Ecommerce accounted for 15 per cent of Tesco’s revenue last year and the group is still fulfilling 1.3m orders a week in the UK, below its maximum capacity of about 1.5m. Online sales in the first quarter were 22 per cent higher than last year and 81 per cent above 2019 levels.
Murphy said the company was watching the growth of “immediate delivery” services such as Getir and Gorillas with interest. “We’re very curious about what the proposition could look like, what the customer need really is and what a viable economic model could look like,” he said.
Tesco recently launched its own service, dubbed Whoosh, in Wolverhampton. It offers delivery within one hour and is fulfilled from one of the group’s Express convenience stores.
“As always when there’s a bit of a gold rush, a lot of businesses go on a land grab looking to acquire customers and that is invariably very expensive,” said Murphy. “But there is a way to make money in this, we just have to get the right model,” he added, echoing recent comments by Ocado chief executive Tim Steiner.
Tesco has not changed its full-year forecasts, reflecting the continued uncertainty over the pandemic — which at its peak caused staff absence rates to surge — and the ongoing challenges of Brexit, inflation and logistics.
A combination of EU drivers withdrawing from the UK, changes to the way self-employed drivers are taxed and a backlog of driving tests caused by the pandemic have resulted in dire warnings from the haulage industry, and Murphy acknowledged that Tesco had been affected.
“We’ve already got plans in place to address the shortfall,” he said. “We’re working very hard at recruitment and retention, making sure we have a very strong offer in the marketplace.”
“Once there is an understanding that there is an availability of work and rates start to potentially look more attractive I think you’ll see a response very quickly,” he predicted, although he added that the company had “not yet” had to raise wages to attract more drivers.