MIDAS SHARE TIPS: If you like you share profits to go with a Whoosh, check out supermarket giant Tesco’s new delivery drive
With social media feeds full of empty supermarket shelves and HGV driver shortages, you might have expected Tesco’s half year figures to be a tale of woe.
Yet the retailer remains upbeat and is continuing to capitalise on the lifestyle shifts we all made during the early stages of the pandemic.
The days of queuing outside stores two metres apart in the rain might seem like a bad dream, but the shift to online shopping brought about by pandemic restrictions remains very real.
Online sales are up 74 per cent compared to two years ago, a trend that shows no sign of going away.
Tesco’s Whoosh online platform delivers groceries from its Express stores in under an hour
But while online sales flourish, Tesco is also doing well elsewhere. Overall revenue is up more than eight per cent compared to pre-Covid times, while the company even managed to beat last year’s sales figures slightly.
This is despite the bumper sales supermarkets enjoyed when we were unable to go out to restaurants or buy lunches at sandwich shops. Profits more than doubled to £1.1billion.
So how has Tesco outperformed the market? Chief executive Ken Murphy puts it down to a resilient supply chain and a depth of relationship with suppliers that it has developed over time.
Initiatives such as its Aldi price match scheme has ensured that it holds its own against the popular German discount chains, while its Clubcard scheme means it knows its customers better than most rivals and can reach them accordingly.
Tesco never sits on its laurels. The company is always trialling new initiatives, most recently dipping its toe into on-demand groceries with its Whoosh platform, offering groceries in under an hour from its Express stores.
The latest figures suggest that the Express stores are faltering when it comes to sales, indicating that on-demand delivery may be making inroads into the convenience market. So Whoosh may help Tesco retain market share.
The supermarket has also identified £1billion of cost savings that it can make through streamlining operations. With all this good news, Murphy raised expectations of full-year profits being in the order of £2.6billion.
He also announced a share buyback scheme which should put upward pressure on the share price.
Despite all this good news in the trolley, there’s still room for concern. The disposable income available to most households is about to reduce sharply as higher energy prices bite and inflation continues to soar.
Whether Tesco will be able to maintain its reputation as a good value retailer will be key to its success in retaining customers who might otherwise defect to Aldi or Lidl.
Brokers reacted positively to Tesco figures, with some, including Barclays, upgrading their share price expectations.
Midas verdict: Tesco has had a good pandemic. The question that remains is whether it can deal with supply chain issues and falling consumer firepower that seems to be on its way this winter.
The odds are in Tesco’s favour, as it has costs it can trim, a supply chain that is the envy of its rivals, and even a bank that seems to be doing well despite the closure of its current account operation.
After the Morrisons’ private equity auction, some even speculate that the company may be on someone else’s shopping list. That could provide a fillip for shareholders. Buy.
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