Tesco reports ‘strong interest’ from brands in new media platform
Tesco claims to have seen “strong” early interest in its new media and insights platform, launched in November last year, and remains convinced it could be a major revenue stream for the retailer in future.
The Tesco Media and Insight platform, powered by Dunnhumby, opens up the wealth of customer data the grocer collects through its 20 million Clubcard users and in-store insights to its supplier brands and agencies, allowing brands to better target customers throughout the retailer’s online and offline media ecosystem.
“Interest has been really strong,” CEO Ken Murphy told Marketing Week on a call with press this morning (13 January) following the release of Tesco’s third quarter financial performance. “We do think it could be a significant contributor over time.”
However, Murphy added that Tesco is not looking at the initiative as “just a media platform in its own right”, it is also being used to help improve its customers’ experience of advertising.
“We really see it as a platform that allows our suppliers to connect with our customers in a way that works for them. And what I mean by that is we really want customers only to be getting things that are relevant to them and that are of interest to them,” he explained.
“And we only want suppliers paying for marketing mechanics that really deliver a superior rate of return for them. We want to bring a level of sophistication to this that we think is really important to its future success.”From ‘co-operation’ to ‘collaboration’: Will the rise of retail media reshape relationships with brands?
With its expanded retail media initiative, Tesco will offer brands five targeting options through its platform, from one-to-one personalisation through to broader mass reach campaigns. These will include targeted display and sponsored product advertising, connected store experiences and the opportunity for brands to deliver more relevant customer rewards.
The grocer claims to reach 58% of the British population each week, higher than Sky and on a par with Facebook and Channel 4.
Around 95% of promotional sales in Tesco are now via its Clubcard Prices mechanism, with 8.5 million customers accessing this via the app.
Forecasts for retail media globally anticipate significant growth in the burgeoning market over the next few years. Insider Intelligence’s total US retail media ad spend forecast anticipates an expansion of 53.4% over the next year from $31.49bn (£23.3bn) in 2021, surpassing $50bn (£37bn) by 2023.
Value push drives market gains
Meanwhile, Tesco has credited “an unwavering commitment to value” for a strong performance over the Christmas period.
The supermarket group’s third quarter and Christmas trading statement shows sales are up by 2.4% for the quarter compared to 2020, and by 7.9% compared to pre-pandemic 2019 figures. Christmas sales were up by 3.2% versus last year and 8.7% compared to 2019.
In the UK and Ireland alone, third quarter sales grew 2.3% over one year and 8.2% over two, with Christmas up 2.7% and 9.2%, respectively. For the 19 weeks to 8 January, sales hit £18.5m.
At the same time, Tesco claims to have reached its highest share in four years, growing share both in stores and online and marketing 22 consecutive periods of customer switching gains.
According to the grocer, its brand index score (a measure of overall brand health) has increased by 177 base points, driven by a 199 base point improvement in value perception and 149 base point improvement in quality perception.
We’ve got plans in place around efficiency, around sourcing, around making sure we keep prices as keen as possible for customers.
Ken Murphy, Tesco
While highlighting the importance of Tesco’s Aldi price match scheme and everyday low prices initiative in driving up value perception among its customers, Murphy added that “great value is more than just great prices”.
“This Christmas we put a lot of effort into showcasing the quality of our products,” he said. Over the third quarter, Tesco expanded its Finest Christmas range by 8%, with new products like truffle mac and cheese, and extended the range into more stores. Sales of the range grew 15% over the festive period.
Asked whether prices are likely to rise in line with inflation, Murphy admitted they had already moved up around 1% on average over the quarter. However, Tesco is “committed” to mitigating inflation as much as possible, even as it expects to see cost inflation of around 5% this year.
“We’ve got plans in place around efficiency, around sourcing, around making sure we keep prices as keen as possible for customers. There’s no doubt there are inflationary pressures – it’s very hard for us to predict what those are going to look like over the coming months, but we’ll do our very best to manage them,” he said.
Convenience could be king
Murphy added that success for Tesco won’t be “just about value” in future.
“It’s not just about value. It’s about making sure you’re delivering on all fronts. On top of that, we’re investing in making sure we can meet all future customer needs as well.”
That includes investing “very heavily” in Tesco’s digital platform and its convenience offering, he added. Online sales were down 12.6% over the third quarter on a one-year basis as consumers headed back into stores, but remain significantly ahead of pre-Covid levels, up 56.1% compared to 2019. Convenience sales were also up 2.8% since last year.
Tesco has now expanded its ‘Whoosh’ rapid home delivery service to more than 100 of its stores, having first launched in one store in May last year. The service promises to deliver small grocery orders within 60 minutes.
In June, Murphy admitted he was “unsure” how Tesco was going to make money from rapid delivery, despite plans to extend its reach. Rivals Co-op, Sainsbury’s, Aldi, Waitrose and Morrisons have all trialled similar services over the course of the pandemic.‘Covid lit the touchpaper’: Exploring the ‘inexorable’ rise of ultra-fast convenience
However, Whoosh is “performing well” he said today, with customers responding well to the service. The service will be extended to around 200 stores by the end of Tesco’s financial year in February, with a mission to grow to 600 stores throughout 2022.
“It’s quite an ambitious expansion programme,” he said. “We’re clear in our mind that this is a mission that needs to be fulfilled.
“We do think it’s somewhere we need to be in. We need to have a good quality proposition that fits into our overall proposition. So it fulfils our strategic desire to make sure our customers can shop with us wherever, whenever and however they want.”