A tale of two grocery stores Part 1 - how Tesco rose to the challenge of COVID-19

Profile picture for user slauchlan By Stuart Lauchlan September 14, 2020
Summary:
Tesco, the UK's largest supermarket chain, had to step up the mark during the COVID crisis and that brought technology demands to the fore, recalls CTO Guus Dekkers.

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At some moment in time it seemed to be the most precious item in the UK to get access to those slots.

So says Guus Dekkers, Chief Technology Officer of the UK’s largest supermarket chain Tesco, casting his mind back a few months to the early days of the COVID-19 crisis, when scoring a delivery slot for online groceries was a badge of honour on social media as supply chains buckled under the demand from housebound customers. 

It’s been a challenging few months for the likes of Tesco as a provider of essential goods and services and as CTO, Dekkers has been on the front line as the need for a robust technology infrastructure has never been more vital as he explained in a recent conversation as part of the AI and Quantum conference London Tech Week event: 

I drive for Tesco on a worldwide basis the classical CIO agenda, but equally the entire digital agenda. So implementing all our apps and all our environments we use in the digitalization process of our organization. I am responsible for the whole data strategy. We build all the internal applications we use to serve our customers. There is a team of roughly 3.5k people, of which more than half have an engineering background. So the vast majority of software, which we use, and which our customers use on a daily basis, is basically built in-house by our team.

Picking up on an increasingly common meme across all sectors, Dekkers pointed to the acceleration of digital transformation and enablement enforced by the crisis: 

In retail and in the grocery industry we've seen probably more change in the last handful of months than we've seen in the last couple of years and we all, as an industry, have been forced to adapt and basically find ways of how we make sure we can continue serving the nation and how we can continue to make sure that there is access to food for everyone. This has been a very challenging  but at the same time I must say a very rewarding experience. 

The toilet roll moment

The most visible challenges related to supply chain and availability. Bizarre though it seems even a few months later, toilet roll hoarding will be noted as one of the enduring images of 2020. That was a surprise, said Dekker, but it was a reality to which the likes of Tesco had to produce a response: 

From a tech perspective, the immediate reaction is of course twofold. On the one hand, it is about trying to find ways of how we can help in availability and making sure that there is an equal distribution of available items to our customers…In the background, of course, the whole debate was around how can we step up in optimizing our supply chain and driving further availability? Just to put it in perspective, demand drove a requirement basically overnight for further warehouses and distribution centers. So we created an  distribution centers which were fully equipped with picking capabilities and capabilities to deliver, which has helped us to insert further capacity into the supply chain and make sure items were ultimately available.  

Demand for online purchasing and deliveries soared as consumer resisted going to the shops: 

Tesco basically delivered roughly between half a million and 600,000 delivery slots a week before the crisis started, and we have grown this to more than double. At the moment, we are offering like 1.3 million,  1.4 million per week to our customers. Now, this has been a tremendous team work of which I'm extremely proud, between the online team, the technology team, but also equally all the people in the stores who have made this growth in online delivery cases a reality. It is all built around how can we use our existing capacities? How can we optimize and make sure that the people were picking and realizing the orders?  How can we make sure that they are doing so  in a safe manner, a COVID-compatible manner, and continue doing their job, while at the same time delivering or reacting to this tremendous growth and demand?

So it all translated for us to, how do we optimize the supply chain, how do you get the better productivity and what's going to happen? How do we change things like routing and taking the algorithm overnight. In order to make sure that our use of our capacity is as ideal as we could be. We have been able to onboard a substantial portion of new colleagues. We onboarded over 30,000 new colleagues over a period of time. To put it in perspective, that sounds easy, but just if you look at it from a tech perspective, how do you make sure you get in contact with new colleagues? How do you allow them to demonstrate their interest that they want to work for Tesco? How do you onboard them? How do you make sure by the end of the month you're able to pay an additional 30,000 new colleagues?. All of these have been massive challenges which we as a team picked up and have found answers to in order to make sure that we could react to these challenges. 

AI played a large role in enabling Tesco to manage the soaring demand from consumers during the early days of the pandemic: 

As they obviously should be in many organizations and the same holds true for Tesco, more and more of our decision making processes, whether through human beings or through automated decision making, is being based on large sets of data, which we use in order to serve our customers better every day. So how can you know what's what's happening, how can you use that data in order to drive the most optimal decision making and serve to make the life of our customers easier. 

For example, if you are a grocery home shopping customer and you are interacting with our environment and trying to book a slot, what basically happens in the background, based on all these data sets we try to optimize our routing for our potential delivery which is growing and changing by the day. As more and more customers express their, their shopping needs...over 2 billion iteration runs, which try to optimize our overall delivery scheme to know our overall delivery routes. That translates on the one hand to some very positive stuff for the environment. We see a 7% to 8% reduction of total mileage which immediately translates to fuel consumption. But equally, which is something which has helped very much during the COVID crisis, is how we can increase our van utilization, and make sure that from a cost perspective, we do the right thing, both for us and for our customers.

Customer-first

As the UK’s largest supermarket chain, Tesco also had a responsibility to support the most vulnerable of its customers. While for many, going to the shops was something that we didn’t want to do, for others it was something they were literally unable to do. Those consumers needed to take priority, recalled Dekkers:

We went the extra mile for this part of the population and created, basically overnight, a dedicated solution for them, which has allowed  many customers who have difficulty gaining access [to stores] to search online delivery slots…That allowed us to basically create for these most vulnerable customers a dedicated journey, dedicated support underpinned by a help desk which has helped them with basically giving them priority access to delivery slots.

While the toilet roll hoarding days appear to be behind us, the COVID crisis continues to evolve. Supermarkets remained open throughout, but the way people shop has changed, probably forever. This means that for firms like Tesco, an ongoing evaluation of the future shape of omni-channel retail is essential. Dekker explained; 

Undoubtedly many of the changes which have been triggered in recent months are not going to go away. We obviously are are finding answers as to how can we react to that overreaching trend of how we can continue to create and produce capabilities in the online space. We are very well aware that the online capacity which we have, our prediction is that that will continue to show a strong, strong growth. As a consequence, we are looking at way how we can optimize our fulfillment of this type of order and as a consequence we are building automated warehouses, which we call Urban Fulfillment Centers. The underpinning idea is our belief that it is important that we fulfill our orders as close to our customers as possible. 

We do the fulfillment of our online ordering in several hundreds of our stores…In this context, we are basically transferring now excess space we have in some of our largest stores into an automated solution called an Urban Fulfillment Center, which is substantially smaller than any traditional automated warehouse you might know. Basically we can do this in a small part of a larger supermarket and through this automation, we are able to increase both the volume of orders we can deliver from such a store  and we can do that more cost effectively. It enables us to offer new activities, like, same day delivery delivery in the next hour, and click-and-collect capabilities. 

The first of thees Urban Fulfillment Centers is just about to go live. Elsewhere there’s an effort to ensure that the way the customer engages with Tesco is as simple as possible, said Dekkers:

.If you go back two years ago, we still had around 45 to 49 different applications out there, each dealing with a very different specialized interaction. A lot of customers thought that this was confusing and didn't help them in order to make the most out of their  relationship with Tesco.  Today we're down to nine different applications and this journey will continue. We will end up in the next month into a far more reduced and more consolidated set of capabilities, which we're just developing with our team, and which will help to improve and support the interaction we have with our customer base.

He concluded: 

Everything we do serves one ultimate purpose and that is making sure that the shopping experience for our customer gets a little bit better every day. That's where many of the technological investments are aiming at, making sure that either visible or a bit less visible to the customer, but ultimately all contributing in making sure that your shopping experience and your interaction with Tesco is as productive and positive as possible. 

My take

The likes of Tesco have been referred to somewhat colorfully as the ‘other emergency service’ over the past few months. Certainly it and others have stepped up to the mark in terms of trying to ensure that the UK is fed and watered and has risen to the challenge. Tesco entered the crisis with a robust omni-channel mindset and capabilities in place. Across the Atlantic, where online grocery services are at an earlier stage of development, the COVID crisis has forced even more acceleration of effort, as Kroger has found