Tesco: IT an increasing driver of business

Tesco, the UK's most successful retailer, is growing more dependent on information technology for new sources of revenue and to underpin the main business.

Tesco, the UK's most successful retailer, is growing more dependent on information technology for new sources of revenue and to underpin the main business.

This emerged this week when chairman Terry Leahy announced a sales increase of 9.1% to £22.6bn, and earnings per share up 21% to 11.65p.

Leahy did not refer to Tesco's ClubCard loyalty scheme, a database of some 11 million customers. However, the database underpins the retailer's marketing programmes and drives sales, so much so that Leahy was moved to say last year that if the firm's IT failed, the firm failed.

One example of Tesco's increasing reliance on IT is its new thermal imaging technology to monitor customer queues and open new tills to meet its "one-in-front" promise.

The firm also leverages different parts of the business to measure and improve overall performance. For instance, Leahy said Tesco had improved on-shelf availability, as measured using in-store picking to fulfil tesco.com orders.

"There is still scope to get better so we have been developing more sophisticated systems to deal with the impact of weather on store sales to make sure we stock the right products at the right time. We have also improved our in-house systems for forecasting and ordering which allow us to manage our stock levels better," he said.

Sales at Tesco Direct, the non-food catalogue offer that uses the tesco.com web site to take orders, rose 9.9% to £3.9bn, with consumer electronics rising almost 40%.

Leahy said, "We started Tesco Direct in a low key way - with initially 8,000 products offered on-line and 1,500 by catalogue, including new categories such as furniture. We now have 12,000 products on-line and the catalogue range has been expanded to 7,500.

"Tesco Direct [also] provides customers with the choice of ordering on-line, by phone or in selected stores. The option to pick up items from some stores is proving very popular. We have desks in 75 stores with plans to add a further 125 by the end of the year."

Leahy said Tesco Direct should contribute more than £150m this financial year compared with a loss of £15m during start-up.

He said tesco.com sales were up 35% in the first half to £748m. Profit excluding Tesco Direct rose 62% to £54.7m. "We are particularly pleased with the performance of our tesco.com-only store in Croydon which serves our customers to the south of London. Sales in this operation are up 66% year-on-year to almost £1m a week," he said.

Leahy said Tesco Telecoms now has more than two million customers. "Our branded telecoms hardware business (landlines, branded mobiles, accessories etc.) has grown by 27% in the first half. Tesco Mobile remains the UK's fastest growing mobile brand in the pay-as-you-go market and it has remained the number one network for overall customer satisfaction.

"Tesco internet phone is performing well, attracting new customers to this exciting new technology. We have just announced the introduction of new landline-style call plans that will enable consumers to use our internet phone in exactly the same way as they use a home phone service - but with very competitive UK and international pricing."

Read more on IT for small and medium-sized enterprises (SME)