Tesco floats the idea of an upmarket store with fat margins

London — Tesco, Britain’s biggest retailer, is considering a trial of an upmarket convenience store under the “Tesco Finest” banner but has not disclosed when or where a pilot will be launched.

Tesco hosted a capital markets day for analysts and investors on Tuesday at which it presented a slide that flagged an opportunity for a Tesco Finest store concept with a 7% operating margin — significantly ahead of the group-wide target of 3.5%-4%.

The premium Finest range of grocery products is Tesco’s most expensive.

“Tesco Finest as a brand is one of the largest food brands in the country. We have a very high percentage of more upmarket customers,” CEO Dave Lewis told reporters on Wednesday.

“The opportunity to curate that range and bring new things in a more convenient outlet is something that we have tested, is something we’re interested in.”

But Lewis said Tesco is “not at a place where we are saying we’re going to open this shop or this many shops”.

The CEO said the point of the capital markets day was to share with investors a number of growth opportunities Tesco is actively looking at without giving specific details on timings. “No dates for any of the initiatives were given,” he said.

Centenary celebrations

News of Tesco’s new concept sent shares in upmarket food retailer Marks & Spencer down as much as 4.5% on Wednesday on competition fears.

In 2018, Tesco launched the Jack’s chain to compete with German-owned discounters Aldi and Lidl.

Other initiatives Tesco discussed on Tuesday include opportunities to sell more unique brands and online meal subscriptions, developing its Clubcard loyalty programme with a subscription model, setting up mini fulfilment centres at the back of stores for online grocery, and delivery robots.

Celebrating its 100th year, Tesco is deep into a recovery plan under Lewis after a 2014 accounting scandal capped a dramatic downturn in its fortunes.

He said in April that Tesco had met, or would soon meet, most of the turnaround goals he set in 2016, including a key margin target of earning 3.5p-4p of operating profit for every pound customers spend by the end of its 2019/2020 financial year.

Lewis said on Wednesday he did not issue a new margin target at the capital markets day. “We said there was more opportunity for us to lower cost and that gave us the opportunity to invest back in the customer offer [and] new propositions, or if none of those were available then the opportunity would be to improve margin,” he told reporters.
Reuters