Tesco's supply chain helps it 'outperform' the market

6 October 2021

Tesco has credited its supply chain as a major asset as it upgraded its profit forecast for the year.

Reporting interim trading results for the first half of 2021, chief executive Ken Murphy said sales and profits were ahead of expectations.

He credited the resilience of the group’s supply chain with helping the group ‘outperform’ the market.

Murphy said: “With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset.”

The supermarket giant reported revenue of £30.4bn for the first half of the year, a 5.9% increase on the same period last year. Profit before tax was £1.143m in the period, up 107.4%.  

Tesco said it had increased its operating profit expectations for the current financial year to between £2.5bn and £2.6bn. In April, it had forecast only “a strong improvement in profitability expected whilst trading conditions likely to remain volatile”.

Murphy said: “As industry supply chains came under increasing pressure, we were able to leverage our strong supplier relationships and distribution capability to maintain good levels of availability for customers, contributing to our market outperformance.”

Tesco said it used a higher proportion of rail to distribute its products than any other food retailer in the UK. The group has a dedicated train service bringing produce to its distribution network from Spain.

Murphy said that the company planned to expand the 65,000 containers it transports by rail each year to 90,000 in the near future. Tesco is also aiming to have a fully electric home-delivery fleet in the UK by 2028.

Earlier this year, Tesco was among supermarkets that had asked suppliers for additional payments to cover the increased costs of transport due to the HGV driver shortage.

At the time, Tesco said it was doing “everything they can” to mitigate ongoing logistics challenges, including increasing the volumes on their rail distribution network, supporting academies for drivers, and engaging with the government on further solutions.

The Covid-19 pandemic had accelerated a number of profound shifts in consumer behaviour, including an emphasis on value, grocery home delivery, as well greater importance on environmental and social considerations, Murphy said.

He added that the company was in a “uniquely strong” position to deal with these changes.

“We have the broadest, most compelling product range and strong relationships with our supplier partners, together with efficient, well-invested supply chain, distribution and fulfilment infrastructure,” said Murphy.

The company also said that it was working hard to reduce the environmental impact of its own and its supplier partners’ operations, including through continuing to remove, reduce, reuse and recycle packaging.

Following a review, the company said it had identified around £1bn of gross savings through simplification across areas such as goods not for resale, improved productivity, optimisation of the delivery network and central overheads. It said it expected to deliver the savings over the next three years.

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