Tesco says it will continue to put its faith in marketing over the next 12 months, following a year in which the supermarket managed to grow sales, gain market share and strengthen its brand in spite of the Covid-19 crisis.
Looking forward, the brand is banking on value, loyalty and ecommerce as key areas to drive further growth.
Over the year ending February 2021, Tesco saw group like-for-like sales grow 6.3%, reaching a total of £53.4bn. In the UK alone, sales grew 7.7% to £39.4bn.
At the same time, its total retail operating profit dropped by 14.7% to just under £2bn, reflecting the costs of staying open under the pandemic. Demand for click-and-collect and other online services, on top of making physical stores safe for shoppers, meant considerable extra investment. As a result, profit before tax fell by 19.7% to £825m.
But looking ahead Ken Murphy, who replaced Dave Lewis as CEO in October, expects to see a strong recovery in profitability as the majority of Covid-related costs won’t need to be repeated.
“I joined the business when our Covid response was in full flow and what the team has achieved is extraordinary,” Murphy said on a call with press today (14 April).
He claimed that by “simply focusing on doing the right thing for customers”, Tesco has increased its market share and attracted customers from all its key competitors, which include the likes of Asda, Sainsburys, Aldi and Lidl.
“We’ve strengthened our brand, improved customer satisfaction, bolstered our value and quality credentials in the eyes of the customer, and we’ve doubled the size of our online business. This all gives us a great platform to build from, even as we face into the uncertainty ahead,” he said.
We’ll be doubling down on our commitment to value and we won’t be pulling back if things get tough. [Being] on the side of the customer is central to Tesco’s DNA.
Ken Murphy, Tesco
While many brands cut marketing spend during the pandemic Tesco continued its activity throughout the year, launching new iterations of its ‘Food Love Stories’ creative and pushing its Clubcard proposition through the ‘The Power to Lower Prices’ campaign. Murphy has said marketing will continue to be “mission critical” in Tesco’s strategy for the year ahead.
“If you start from the point of view which I do, [where] your brand is your most important asset after your people and your customers, then marketing of course is absolutely mission critical,” Murphy commented, adding that the brand invests “strongly” in the function and is increasing its presence over time.
In particular, the proportion being spent on digital is rising “all the time”, he said, as a reflection both of the mix of the business and where consumers are consuming marketing.
“Marketing, I can promise you, will be absolutely central to everything we do in Tesco,” Murphy added.
Value is here to stay
Over the next year, the supermarket will be “doubling down” on its commitment to value, the Tesco CEO pledged. The brand recorded its highest ever value perception in a decade after launching its Aldi Price Match campaign in March 2020 and extending it to over 500 lines.
According to YouGov’s BrandIndex tool, Tesco’s value perception rose from an average score of 20.3 during its 2019/20 financial year, to 25.1 for 2020/21.
“Looking to the future, we’ll be doubling down on our commitment to value,” Murphy said. “It’s here to stay and, most importantly, we won’t be pulling back if things get tough. [Being] on the side of the customer is central to Tesco’s DNA and will remain so.”
While value is a particular focus for Tesco, Murphy added that the supermarket recorded improvements in every brand health metric during 2020, with customer satisfaction the best of its brand health scores.
“As you can see, we are committed to improving our brand perceptions across every measure, not just value,” he said.
Tesco also has “lots in the pipeline” on customer loyalty, after recording notable growth in its loyalty scheme over the pandemic. Nearly 80% of transactions in large stores during the second half of the year were made by Clubcard members, up from 67% in the first half.
A new wave of member-only price cuts in September drove more than 2 million additional active users to the Clubcard app. Tesco now has over 3,000 lines as part of the Clubcard Prices scheme and plans to add even more categories as it rolls out through general merchandise and the F&F clothing range.
According to Murphy, the Clubcard Prices push has also helped to reinforce the value of the loyalty scheme, with a 7% increase in customers feeling rewarded for loyalty.
The online shift
Meanwhile, with the majority of the high street shuttered, customers afraid of venturing outside and long queues awaiting those who do, the shift to online has been pronounced for Tesco over the last year. In the year to February 2021, online sales rose by 77% to £6.3bn.
Murphy branded online a “unique opportunity” and a “hugely valuable ecosystem” for Tesco, which claims 35% of supermarket market share online versus 27% of traditional market share. He added that online sales are profitable, even when given the full allocation of fixed costs.
However, he still sees physical stores as the “backbone” of the business.
“We need to increasingly improve the sophistication of our online platform, as well as making sure the in-store experience is steadily, continuously improving,” Murphy said.
“We think that there will be a greater importance of digital and virtual in the future. But we think that that stores will continue to be the backbone of our business.”