Tesco profits drop despite multichannel shopping

Tesco's pre-tax profits fell 24% to £1.39bn over the first half of its financial year despite adopting multichannel shopping technology

Tesco's pre-tax profits fell by 24% to £1.39bn over the first half of its financial year to the end of August 2013.

The retailer has seen difficulty across the globe, with profits falling 67% in Europe to £55m and in Asia (excluding China) profits fell 7.4% to £314m. But in the UK Tesco's profits rose 1.5% to £1.13bn.

The retailer said it had seen strong growth in its online grocery with a 13% increase in the UK and a 54% increase overseas.

Tesco chief executive Philip Clarke said Tesco had signed 40,000 more customers to its Delivery Saver subscription scheme in the first half of the year. The company had also rolled out its Click and Collect drive-through collection points to almost 200 locations.

Additionally, it has opened a fifth dotcom-only store earlier this year and will open its sixth later in October 2013. The dotcom-only supply the demand of online grocery shopping demand, especially in urban areas like London.

Online growth

18 months ago, Tesco committed to ramping up its online division as part of its strategy to invest £1bn following disappointing UK sales. The grocer planned to invest £150m across its dotcom businesses in anticipation of further migration of customer shopping habits to online channels.

Meanwhile, grocery store competitor Sainsbury’s saw total sales for the second quarter of this year to the end of September 2013 rise 5%. Sainsbury’s total sales for the first half of the year rose 4.4%.

Chief executive Justin King said: "Our groceries online business grew by over 15% in the quarter and is now worth over £1bn in annual sales."

During the quarter Sainsbury’s launched its mobile offering as a joint venture with Vodafone. “Developing new business remains an important part of our strategy,” said King.

The service – which went live in the summer – hopes its large customer base, footprint of stores across the UK and online presence, merged with Vodafone’s technology, will be a solid springboard for the new service, despite entering an already crowded market place.

Multichannel focus

Tesco’s focus on becoming a multichannel retailer has led the company to offer the service in 50 cities in nine markets outside the UK.

“We have continued to invest in improving the integration of our customer offer across all of our store formats and channels and last month we launched ‘Hudl’, our first tablet computer, which offers instant access to Tesco’s full range of digital services, all in one place,” said Clarke.

The grocer has also piloted three new Tesco Extra stores in the UK, which claim to showcase a new type of retailing experience. “These bring together our best fresh food offer, our latest thinking on general merchandise, our next generation clothing departments and the introduction of our new casual dining concepts,” said Clarke.

Data business

Speaking to Computer Weekly last week, Tesco chief marketing officer Matt Atkinson said the company is using data analytics to push forward its multichannel strategy. “We’re a really good data business because of Clubcard,” he said.

Tesco is using technologies such as augmented reality in its clothing department to provide a richer environment for the customer.

Atkinson said Tesco plans for the Clubcard to become digital by the end of the year, allowing the paper coupons that customers receive to seamlessly integrate with the mobile app so that, at the point of sale, promotions will be instantly recognised.

But Atkinson also said that a fully integrated digital mobile wallet – the Tesco Home Plus – should be launched in the UK in about a year. It is already live in South Korea, where customers can shop and pay using their mobile wallet app.

Because Tesco has a bank, its current strategy is to work with Tesco Bank to provide the wallet, which will integrate with other cards. Atkinson says this would attract some of their most loyal customers – the ones who already have Tesco Credit Card, which they get Clubcard points for using. 

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