Tesco will be ramping up online delivery slots with a flurry of new urban fulfilment centres coming, the supermarket giant said as it revealed UK digital sales surged 77% during the pandemic.
The FTSE 100 grocer updated on the growth plans as it showed how sales topped £54 billion, up 7.1%, in the year to February. However, pre-tax profits slumped to £825 million from £1 billion as Covid-linked costs bit.
The company, which as an ‘essential’ retailer has been allowed to stay open during lockdowns, has seen high demand while numerous high street firms had to temporarily close.
During the period and in response to the “unprecedented increase in customer demand for online groceries”, Tesco doubled online capacity to 1.5 million slots per week. UK online sales were £6.3 billion, up 77%.
The retailer opened a ‘urban fulfilment centre’, a automated picking warehouse, during the year. It today said another is due to open next month, and a further four sites are due to be ready within the next 12 months.
Tesco said: “These UFCs will enable us to provide access to more delivery slots for customers with an increased rate of picking - a scalable, efficient option to fulfil ongoing online demand.”
Today the firm also appointed Bertrand Bodson, a former chief digital marketing officer at Sainsbury’s Argos, as a non executive director. It said he has “significant experience of digital transformation, technology and the application of AI”.
Ken Murphy, chief executive of Tesco, said that in the future there will be a greater importance on digital, but he added: “We think that stores will continue to be the backbone of our business.”
The company may this week see any potential impacts from shoppers having more choice of where to go, after lockdown eased on April 12 and non essential retailers were allowed to reopen.
Tesco said: “Whilst we expect some of the additional sales volumes we have gained this year in our core UK market to fall away as Covid-19 restrictions ease, we expect a strong recovery in profitability and retail free cash flow as the majority of the additional costs incurred as a result of the pandemic in the 2020/21 financial year will not be repeated.”
Last year the company recorded Covid-linked costs of £892 million in the UK, and that covers factors such as PPE and increased staff absence.
It expects retail operating profit to recover to a similar level as in the 2019/20 financial year, but analysts at UBS said that is lighter than consensus expectations.
The shares declined 6.4p to 225.7p
Tesco has has proposed a final dividend of 5.95p per share to take full year dividend to 9.15p per share – which is in line with last year.