So; this is the first of what i hope will be many “analyst style” notes that i will produce. I’ve tended to publish under the #HankinsHotTake label. Its a bit corny, i know that, but its an attempt to cut through some of the “fluff” out there and provide a little insight into what can be quite dry, sometimes vapid content. The last week has been particularly busy and the ambition is to get these notes out a bit quicker and contemporaneous, couldn’t be helped but; to that end I’ve bundled Tesco and Sainsburys together. I don’t do every update and whilst i skew Retail, Tech and Media i do sometimes look at other businesses that interest me. There is also a UK focus typically although I will mention International implications if relevant
I like to follow a simple format
Headlines – These are the topline performance figures taken from various reports. Its easy to find this stuff so i don’t dwell too much
Statement – This is a digest of the various accompanying news excerpts of validating information
Implications (the HOT take) – This is my view on the strategic implications and context of the headlines and the statements.
First up is Tesco
Headlines = +9.2% up as a group. +9.1% (UK and Ireland) +6.1% Booker. Like for likes were up 8.7% in the UK whilst Booker was up 0.6%
Statement = A positive update, bursting with can-do attitude and CSR nods in line with the prevailing cultural winds. Big outtakes include positive switching from ALDI for the first time in a decade, a significant shift away from promotions (28% to 14%) and a clear split between Food (+12%) and GM (-20%). Worth noting that incremental costs are expected to contribute some additional -£300m (when business rates relief of c£500m is taken into account)
The Hankins Hot Take = It all looks rosy for Tesco at the moment in the final months of Dave Lewis’ reign. The near 50% increase in delivery is certainly impressive and this was done without the help of the urban distribution centres that are currently under development. The positive shifts against ALDI are also to be welcomed although this is probably as much a function of ALDIs weakness in e-commerce and a store set-up ill suited to social distancing than anything fundamental by Tesco. In fact when looking at Kantar Worldpanel data its clear that Tesco actually lost share during the period going below 27% for only the second time as far as this data goes back with this slipping to the smaller players.
The shift to “everyday low prices” is an interesting strategic choice although it fits the simplification approach that Dave Lewis has applied to the whole business so is to be expected. It will certainly help in the next few months if the economy slips further rather than V-bounce in line with the BOE estimates. There should also be concerns about the Booker business. The majority of its growth was driven by acquisition and whilst its wholesale business was up, supplying as it does the local store network of brands (Budgens etc) that witnessed positive share growth in lockdown. The catering business, perhaps unsurprisingly was down significantly.
With all this in mind Ken Murphy is likely to come in with a few jobs on his hands. Accelerating the ongoing distribution capex is the big one, whilst the other the shorter term impact of the flight to local which was the biggest impact on share. The discounters aren’t going away and have a significant slate of openings planned and with no such expansion for Tesco there needs to be a concerted effort to drive demand and maintain the net movement switching from them into the mid term.
Headlines – 8.5% up and 8.2% LfL. Grocery sales up 10.5%, Online sales up 87% and Argos up 11%
Statement = Another positive update (like Tesco) with some remarkably similar figures. Doubled e-commerce (this aligns with a category doubling), a large cost implication of £0.5bn broadly covered by business rates relief and some positive shifts in price perception. This being Simon Roberts first real chance to communicate there is an argument that it couldn’t have gone much better.
The Hankins Hot Take – The immediate thing to notice is the negative trajectory that has been reversed for Sainsburys. Last year was a bit of a shocker for the business with profit and sales down along with significant declines in share. This was reversed at Christmas and the Covid effect on the category has benefited all. The jewel in the Sainsburys crown so far has been the significant growth of ARGOS. Its telling that whilst Tescos saw a decline here, even with stores closed, ARGOS performed well. Its renown “hub & spoke” distribution network eminently suitable for lockdown.
I suppose the BIG insight is that nobody seemed to fcuk up in grocery over the covid period. All have pulled out the operation stops and delivered meaning that no-one has really outperformed the market. Even the estimated costs are proportional to size meaning they’ll all have the same “asterisks” attached come full year. What this means is that the same challenges persist. Sainsburys has a clear strategy to utilise its square footage but how to guarantee growth? Mike Coupes gambit with ASDA failed and hes now gone. There are no attractive other mergers on the horizon and with L4L’s under pressure last year I’m sure we’ll see that return. Sainsburys typically do well at Christmas as a function of the “scale-up” phenomenon, they are a seen as a step up from Tesco and the discounters but they need to create a clearer proposition in consumers minds to stand a chance of growing.
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