Following a year fundamentally shaped by the coronavirus pandemic, Tesco boss Ken Murphy set out his vision for utilising the strength of the retailer’s Clubcard customer base to put clear water between the grocer and its competitors.
- Boss Murphy believes Tesco can leverage its growing Clubcard subscription network to create “a really interesting ecosystem”
- Tesco is adding 1,000 new general merchandise lines to its Clubcard Prices scheme and has plans to add F&F fashion items later in the year
- Murphy also flagged future plans to utilise Clubcard data to offer customers more personalised offerings
Presenting Tesco’s interim results for the 52 weeks to February 27, chief executive Ken Murphy was keen to emphasise the strong position the grocer is in to capitalise on changing customer behaviours as the UK begins to emerge from lockdown.
While profits slid due to Covid-related costs, Murphy laid out three key areas of focus coming out of the pandemic that he felt were “very exciting”: value, customer loyalty and the continued growth of digital platforms. He made clear that central to all three of those strategic pillars will be Clubcard and the Clubcard app.
“When you look at the growth of Clubcard, combined with the increasing penetration of our online business, that gives us a unique opportunity to create a really interesting ecosystem,” he maintained.
Focus on Prices
Murphy said Tesco has “really re-injected life into Clubcard”. Active users of the app have more than doubled to 5 million since it unveiled Clubcard Prices in September 2020.
Introducing Clubcard Prices had an immediate effect on the take-up of the loyalty scheme in Tesco’s supermarkets.
Murphy highlighted that 80% of all transactions in the supermarkets had gone through Clubcard in the second half of last year, up from 67% in the first half. It was also the third most popular app downloaded across iPhone and Android devices in March 2021.
Across the app and the physical card, Tesco said there are now more than 20 million Clubcard users in the UK, which offers “rich data and customer insight”. This growth has been achieved without the grocer actively focusing on expanding its subscription offer during the pandemic.
“Clubcard users are getting to the tills and seeing £25 drop off their bill. It makes the Clubcard offering very powerful”
Bryan Roberts, Shopfloor Insights
“I think you can see from the sense of value that we’ve created through Clubcard prices that it has been very compelling for customers. But much more importantly, we’ve seen almost a doubling in the number of the active users on the app,” says Murphy.
Shopfloor Insights founder Bryan Roberts says Clubcard Prices has been “a bit of a game changer” for Tesco.
“If you’re a Tesco customer and you’re not using Clubcard, you’re going to be looking at the discounts you can get through the scheme and thinking, ’What am I doing? I’m seriously missing out’,” he says.
“Clubcard users are getting to the tills and seeing £25 drop off their bill. It makes the Clubcard offering very powerful.”
The offering has also synced well with Tesco’s Aldi Price Match, unveiled in March last year.
Combined, GlobalData grocery analyst Thomas Brereton believes Tesco has firmly established itself as “a value leader in the minds of shoppers, which will be crucial as the longer-term economic impact of Covid-19 comes to the fore”.
New lines
For Murphy, the potential for Clubcard goes beyond driving sales of groceries in store. The retailer will have introduced 1,000 new general merchandise lines to Clubcard Prices by the end of April and Murphy highlighted plans to begin offering F&F fashion lines through the scheme later in the year as well.
He said that extending lines beyond core grocery is about tapping into the changing psychology of customers and how they shop.
“The psychology of it is how we start to shift people from thinking about it as a Tesco Clubcard and start thinking about it as my Clubcard,” said Murphy.
“We want to make it so that customers feel Clubcard is personalised and tailored to their needs. So it really gives them value and product propositions, and involves them in categories they find exciting”
Ken Murphy, Tesco
“We want to make it so that customers feel Clubcard works for them, that they feel it’s personalised and tailored to their needs. So it really gives them value and product propositions, and involves them in categories they find exciting.”
Roberts says it has long been a dream for Tesco to have “customer loyalty, ecommerce and payments all in one place”. While the retailer may be some way off achieving that, Roberts believes expanding the categories offered through the scheme represents a big step.
“If customers are made aware they can also generate additional savings by shopping F&F, that might lead some people into that category they weren’t previously active in,” he observes.
Truly multichannel
Last year, Tesco more than doubled the number of delivery slots it could offer online customers, from over 600,000 a week at the start of the pandemic to more than 1.5 million now.
Online sales last year rose 77%, providing an extra £2.8bn in revenues, and Murphy now says the channel is profitable for Tesco.
The retailer also opened its first urban fulfilment centre (UFC) at its West Bromwich Extra store and a second is due to come online at Lakeside Extra in May.
Murphy said the West Bromwich UFC is currently picking 500 online orders a day, which is the same as a supermarket pick-at-store model.
However, he says the UFC approach could fulfil as many as 750 orders a day in future, which gives Tesco “a lot of flexibility” while substantially reducing the cost per order.
With a more flexible and cost-effective online fulfilment model in place, Murphy says online Clubcard offers could become both broader in terms of what they cover and more personalised to individual customers.
“It opens up a whole world of possibilities, from helping customers to eat better, to more balanced nutrition, to better value on products that are really important to them”
Ken Murphy, Tesco
“It opens up a whole world of possibilities, from helping customers to eat better, to more balanced nutrition, to better value on products that are really important to them, to relationships with suppliers who may want to offer them new and differentiated products and get their feedback,” says Murphy.
“So there’s lots of different possibilities that we see through this platform.”
After taking the helm at the UK’s largest retailer during the most turbulent period for retail in living memory, Murphy is clearly confident that Tesco has all the building blocks in place to not just retain that extra spend as lockdown begins to unwind, but also build on it as the world returns to a new version of normality.
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