Tesco outlines online growth plan

Tesco has responded to significantly increased demand by doubling its online capacity.

It is now fulfilling over 1.3 million orders per week. In addition to providing more delivery slots for customers, it has also increased the availability of its click and collect service, which now represents around a quarter of online orders.

As a result of the changes, Tesco’s online grocery business has grown from c.9% to over 16% of total UK sales. 

The company said in its first quarter 2020 trading report: “We originally set out a plan to double the capacity of our online business in the medium term, including the development of at least 25 urban fulfilment centres (UFCs).

“While the construction of our first UFC in West Bromwich Extra was paused in March due to government restrictions, we were able to complete the work in June and our first customer order will be delivered next month. We are well positioned to capture market growth beyond our original ambition and will continue with the roll out of the UFC programme as we respond to the accelerated shift in customer demand.”

Increased costs
Tesco continued: “Our response to COVID-19 has required significant changes to our operations which have led to a substantial increase in costs, with the main impact in the UK. The majority of these costs relate to payroll which includes the provision of twelve weeks’ paid leave to 26,000 vulnerable colleagues, in addition to the recruitment of 47,000 temporary colleagues to cover absence and meet increased demand. We have also incurred costs in areas such as distribution, where we have needed to re-open previously mothballed distribution centres and property, where we have incurred costs to adapt the store environment and temporarily lost tenant income.

“The provision of safety-related consumables and personal protective equipment across all of our 3,628 stores in itself results in a charge of c.£(65)m. In total, our latest estimate of incremental costs for the UK for the full year is c.£(840)m.  These costs will be partially mitigated by the UK business rates relief of £532m and a contribution from additional food sales."

Best Food Logistics
Best Food Logistics (aimed at the catering market) showed sales down (70)%; improving recently to c.(50)% as customers reopen for business. Tesco subsidiary Booker bought Best Food Logistics last year.