by Julian Goldsmith

Tesco’s powerhouse is still the UK

Oct 04, 2010
Financial Services IndustryIT StrategyMobile Apps

Tesco’s latest interim results show that the retail powerhouse shows no sign of slowing down. In terms of UK IT investment, online retail, Epos and banking systems are probably the most vibrant areas of development.

The grocer posted group sales of £32.9bn, including VAT for the 26 weeks ended on 28 August 2010, a growth of over eight per cent, compared to the same period last year. An extensive overseas business in Eastern Europe and Asia has allowed it to take advantage of economies that are recovering much more quickly than the domestic market, but it has to be said that the UK contributes just under a third of the company’s group sales and that will have an impact on where investment is likely to go.

Tescohas a solid reputation for investing in robust infrastructure projects that support core retail requirements, such as product availability, canny merchandising and effective customer insight.

It has fine-tuned store operations so well that it has templated them and exported them to store openings overseas.

The fruits of this strategy can be seen in mentions of its online picking service reaching 97 per cent availability, online baskets reaching £100 and the company that oversees its customer loyalty card Clubcard, Dunhumby becoming a wholly-owned subsidiary of the group during this half-year.

The customer information Clubcard gives to Tesco is extremely valuable in identifying demand trends and shopper demographics and it’s an astute move by the retailer to bring the company that’s behind it further into the fold.

These developments show how Tesco is not only adept at laying in durable infrastructure and processes, but also has the IT talent to be able to crunch data on a massive scale, into meaningful business intelligence.

In the UK, stores continue to be upgraded with a commitment to self-checkout support (10 million Tesco customers habitually use them) and a trial in customer self-scanning handsets. This isn’t just a shopper gimmick. These technologies could increase customer throughput at the checkout. Long queues increase the chance of the customer abandoning the purchase entirely.

However, even though the scale of retail sales in the UK for Tesco is huge, growth and margins are likely to remain static for some time. The best show in town for the retailer is its banking services, which were brought in-house from September 2009. It expects to grow banking revenues to £1bn over three years. Tesco has been developing a banking platform to support its financial customers and is in the process of bringing this live, transferring existing customers and launching new products at the moment.

This is clearly new ground for the company and requires some alternative IT capabilities in terms of staff and management to its legacy business. Banking is built on the trust of its customers, gained over time, as much as a robust branch network and a good store of working capital. However, Tesco has already demonstrated it can manage the transaction processing volumes and customer data handling challenges that face a modern bank. And as far as customer loyalty is concerned, this half-year’s figures speak for themselves.