Despite low consumer confidence and a pallor of gloom around the government’s coming Budget, Tesco boss Ken Murphy is still confident about Christmas
On the day when Tesco upgraded its full-year profit guidance and reported that sales exceeded expectations in the first half, the boss of the UK’s largest supermarket Ken Murphy looked ahead to the end of the year and the build-up to Christmas.
Tesco reported an adjusted operating profit of £1.6bn, up 15.6%, while retail-adjusted operating profit was up 9.7% to £1.5bn.
Group sales were up 3.5% to £31.5bn driven by growth in volume. Retail like-for-like sales were up 2.9% – 4% ahead in the UK, 4.7% in the Republic of Ireland and 0.6% in Central Europe.
Customer stability
Two weeks ago, the GfK consumer confidence survey found that confidence fell sharply in the UK over September, as customers looked ahead to the new Labour government’s October Budget with dread after warnings of yet more “painful” spending cuts.
While Murphy agreed that customers weren’t “doing cartwheels down the hallways” at the moment, he said that Tesco was more upbeat about the run up to Christmas, despite the “gloomy” consumer outlook.
“The first half has been very strong in terms of volume and what you’re seeing now is a little bit of a lower-than-expected inflation rate,” said Murphy.
“I think that’s a good thing for customers in terms of sentiment. We track sentiment every week and they [the customers] are in reasonably good shape, and you’re seeing a stability in customer sentiment from a grocer point of view and also a willingness to spend a little bit more to treat themselves.”
To that end, Murphy pointed to sales of its Finest range, which he said were up 15%, while its Finest dine-in-for-two ranges were up 18%.
“We’re gearing up for a good Christmas,” Murphy continued. “We really want people to enjoy Christmas. We want them to be able to celebrate with their friends and family very affordably. So, we’re buying up in terms of our volumes, we’re putting together a very strong trade plan and we’re very excited about Christmas. I think it’s going to be a good one”.
Despite his bullish stance on the coming festive period, Murphy said he wouldn’t go so far as to describe it as “the best Christmas since the pandemic” because there’s “always an element of risk” in such predictions.
“We’ve got a very strong plan, we’ve got a [strong] product range and all at great value,” he said. “So, we think based on what we’re seeing through customer behaviour, customer trading patterns, volumes coming through the business, all of those point to us feeling very good about that”.
Fashion forward
Murphy also confirmed that Tesco will return its F&F clothing line to its ecommerce platform for the first time since 2018.
Tesco had pulled F&F from its online store because it said it wasn’t profitable, but Murphy said Tesco’s new marketplace and changing customer behaviour in the intervening years meant bringing its own-brand clothing offer back online made sense.
“All the customer insight we have tells us that between 80% and 85% of all clothing searches now start online,” said Murphy. “So, we knew that, at a minimum, we had to offer our range of F&F clothing on our website.”
Murphy said that while F&F didn’t work with an online grocery home delivery model, “it did work” from an online marketing standpoint. “And so having launched Tesco Marketplace, it became a logical thing for us to do to launch it on that website.”
He said that Tesco Marketplace would give customers the “visibility of what’s on offer at F&F on the web. Because of the size of our stores, the range that’s available is variable by store. So, it’s great for customers to be able to see what’s available from the full range, not just in their local shop, but also online”.
F&F clothes are also available through a partnership with Next, and “I don’t have any plans to change that”.
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