Home Business NewsBusinessRetail News Tesco drives a hard bargain

Tesco drives a hard bargain

by LLB Reporter
17th Jun 22 11:23 am

In relative terms Tesco is in a decent place. The supermarket is the market leader and its scale enables it to drive a hard bargain with suppliers to help protect its margins against mounting inflation without putting up prices too much for shoppers.

However, Tesco is far from immune to the challenges facing all consumer-facing businesses and that is evident in its latest update.

Overall sales figures enjoyed a positive contribution from inflation, but volumes seem to be falling as habits start to shift in the face of challenged household budgets.

“The cost of living crisis is largely out of Tesco’s hands and when it comes to the things it can control it is doing well,” Russ Mould, investment director at AJ Bell, said.

“The Aldi Price Match and Low Everyday Prices initiative is helping to hold off the challenge of the German discounter and by offering lower prices on lots of products exclusively to Clubcard members it is helping foster loyalty among its customer base.

“This is reflected in market share gains for Tesco – with the proposition looking less vulnerable to the threat posed by Aldi and Lidl than the likes of Morrisons, Sainsbury’s and Asda.

“To a large extent Tesco is not overly exposed to discretionary spend pressures, bar elements of its wholesaling Booker business and its clothing and general merchandise lines. People might try and economise on their grocery shop, but ultimately they will still need to buy food and toiletries.

“Tesco has been well-run since ‘Drastic’ Dave Lewis took over when the company was at a low ebb in 2014 and that appears to be continuing under his successor Ken Murphy.

“The business has been streamlined, issues like the pension scheme have been sorted out and its debt has been refinanced. This means a good portion of the cash the company generates can be handed back to shareholders through dividends and share buybacks.

“One potential concern is the drop in online sales. The rapid adoption of a web-based weekly shop during the pandemic looked to be transforming the economics of grocery delivery, the commerciality of which had long been in question. With fuel prices soaring and orders down, that might now be under threat again.”

Leave a Commment

You may also like

CLOSE AD

Sign up to our daily news alerts

[ms-form id=1]