Tesco's omni-channel vision for the Vaccine Economy - customer and data centric in focus

Stuart Lauchlan Profile picture for user slauchlan October 6, 2022
Tesco CEO Ken Murphy loves his Clubcard. So, it seems, do millions of others, which is just as well given its role in the firm's wider digital strategy.

(Tesco )

As dignomica has noted over time, the role and performance of supermarket operators during the pandemic crisis accelerated their online and omni-channel programs enormously. Now, on both sides of the Atlantic, this sector of the retail market is working towards its own definition of a new normal in the Vaccine Economy.

Tesco, the largest supermarket chain in the UK, was a company that did well during the COVID outbreak, rising to meet the challenges of lockdown through judicious use of technology. Earlier this year, CEO Ken Murphy argued that the company had emerged as a much stronger business as a result of what it had to do when the pandemic was at its height.

Flash forward a few months and, as with other major retail players, the shape of things to come is becoming more apparent, even as the cost of living crisis and rising inflation provide additional complications. As Murphy puts it:

In June, we said that we were starting to see some small changes in customer behavior, but that it was difficult to separate them from the effects of post-pandemic normalization. We can now see tangible changes in behavior, purely relating to increases in the cost of living. Whether it's switching to Tesco own brand to take advantage of our great prices, or making more subtle changes such as switching from fresh to frozen, we can see customers prioritizing value wherever they can.


So Tesco needs to adjust its thinking accordingly.  Among its strategic objectives, the firm includes:

  • Creating a competitive advantage through powerful digital capability.
  • Serving customers wherever, whenever and however they want to be served.

Taking the first of those into consideration, there is reason to be cheerful. Overall online sales and orders may have fallen from their pandemic peaks, but both remain more than 50% ahead of pre-COVID levels.  Online market share remains stable at 35.9%.

As for serving customers anywhere, Tesco continues to roll out more Click & Collect sites and reckons to be within a 25 minute drive of more than 70% of all UK households, while kerbside collection is now on offer at 180 locations.

Meanwhile the firm is ramping up its Urban Fulfilment Center (UFC) rollout, with a fifth site now open in Rutherglen, boasting the the fastest capacity ramp up to date in just eight weeks. It’s now fulfiling more than 3,600 orders per week.  With this growing infrastructure, the Tesco Whoosh superfast delivery service is now available in over 400 sites.

Overall, online is still a big deal, says Murphy:

I mentioned back in April that we were expecting further normalization in the online market in the current year, and this is what we have seen. Orders, while still strong at over 1.1 million per week, are down around 10% year-on-year. Happily, where we are seeing customers return to shopping in-store, a large proportion of these are doing so with us. Our online business still remains significantly ahead of pre-pandemic levels and we've seen a robust performance in market share, holding broadly flat year on year.


Also playing a major part moving forward is the Tesco Clubcard loyalty program.  Over 20 million households are now actively using Clubcard, up 3.3 million year-on-year. Meanwhile the Clubcard mobile app now boasts 10 million UK users, while extended in-app personalized rewards have been delivered to over two million customers. Overall, Clubcards are used as part of 75% of all sales in stores across the UK.

Murphy is inevitably a big fan:

I love my Tesco Clubcard. We've made great progress throughout [the year to date] on Clubcard. With Clubcard prices fully rolled out across all markets and businesses and Clubcard satisfaction up five points year on year. Clubcard penetration has also increased significantly and is proving an invaluable tool for customers as they navigate the pressures they are facing.

It’s important to think about how Clubcard fits into the wider digital strategy, he notes:

[It’s] all about putting the foundations in place, creating a strong proposition through Clubcard prices and enabled us to significantly increase penetration, at the same time as migrating customers onto our digital offering. We've also been developing our capability in parallel. This includes enhancing our ability to personalize, strengthening our digital customer experience, and reinvigorating our data science business, dunnhumby.

Although it is early days, we have already started to benefit from the application of this capability. We are building the strong base dunnhumby has already established with suppliers through dunnhumby shop, and we have launched a new service, Tesco Media and Insights, which is starting to work with a range of consumer goods brands to monetize some of the new opportunities we have created. While the bringing together of these tools and capabilities is still relatively new, I see it as one of the most important long-term opportunities for us to focus on.

Tesco’s vast data resources are clearly an asset, he explains:

The first thing that we focused on and have been doing for the last two years, is really driving up penetration of the Clubcard. And we're really pleased with the progress on that. So we've increased our active user base to over 20 million, and we have 10 million people now using the app on a regular basis, and so that's given us a fantastic basis to really be able to exploit the capability.

The second stage, and some of that's been working in parallel, has been really to build the capability, both within dunnhumby and Tesco, to make the best use of that data. And that's included testing and trialing over 2 million personalized promotions through the app. And the third, of course, is the application of that, and that is really what the next three years holds for us, and it's one of the things that's going to be key, a pillar of our strategic priorities going forward.

My take

As the Vaccine Economy continues to take shape, Tesco has a pragmatic approach to what needs to be done. Murphy’s summation:

We're very focused on our medium to long term strategy, which is really about being the best value proposition in the market across the widest possible range, and it's basically having something for everyone. The second [priority] is to be the most comprehensive retailer in the market, available in every channel, really working on proximity and convenience for our customer base. And the third, of course, is to make sure that we reward that behaviour through our loyalty platform and also make sure that we get to know customers that little bit better through that understanding of customer data. And that's really paying dividends for us.

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