Tesco delivers 16,000 jobs in fight for web dominance
Grocer to take on drivers and product pickers with online sales forecast to hit more than £5.5bn this year
TESCO is creating 16,000 new jobs as it battles with rivals to keep up with booming demand for online groceries.
The UK’s biggest grocer will hire 3,000 delivery drivers and 10,000 pickers to put together customer orders in its stores, following a huge boom in demand after lockdown forced shoppers to buy their goods online. The remaining roles will be in shops and distribution centres.
It opens up a major new front in the battle for the nation’s food spending and will force a response from competitors seeking to cash in on what looks like a long-term change in shopping habits. Jason Tarry, Tesco’s UK boss, said: “These new roles will help us continue to meet online demand for the long term and will create permanent employment opportunities.”
British customers long resisted a move into internet grocery shopping, with most holding out even as demand for clothes and other products surged online. Many retail chiefs and analysts believed that nothing would change this attitude, but then Covid struck.
Online sales rocketed as customers stayed at home to avoid getting ill, with a host of major players running out of delivery slots weeks in advance. Internet sales now account for around 14pc of the UK grocery market, double prepandemic levels. This surging demand has sparked fresh interest from the biggest grocers, which had previously been heavily focused on a battle to prevent German bricks-and-mortar discounters Aldi and Lidl from luring customers away with lower prices.
The race to beat rivals online has already triggered a flurry of activity, with Marks & Spencer due to launch a major tie-up with delivery firm Ocado within weeks and Amazon announcing that users of its Prime service can get their groceries shipped for free.
About 9pc of Tesco’s sales were online before the crisis, a figure that now stands at more than 16pc.
The firm expects online sales to be worth more than £5.5bn this year – up from £3.3bn in 2019. Tesco said the 16,000 new jobs were in addition to 4,000 permanent roles it had already created since the start of the crisis. It may hire even more staff as the online business continues to expand.
The grocer is also considering a free delivery service of its own, as part of its Clubcard Plus loyalty scheme.
Tesco now serves roughly 1.5m online customers a week, up from around 600,000 at the start of the year.
The announcement is a rare piece of good news for the retail industry, which has been plagued by tens of thousands of job losses.
Visits to all types of shop increased by more than 4pc last week compared with the previous seven days, according to industry data from Springboard, but retail footfall was down by 30.7pc compared with the same week in 2019.
The rush of orders for online grocery deliveries during lockdown threatened to overwhelm even the country’s largest and best-prepared supermarkets.
Ocado, which presents itself as a hi-tech digital supermarket, even had to stop accepting online orders from new customers at the height of the panic buying.
The rapid change in customer behaviour has convinced many supermarkets to speed up plans to embrace online grocery deliveries.
Tesco yesterday announced that it would hire 16,000 permanent workers to help it cope with the growth in online orders. The supermarket said it was now handling 1.5million online orders per week, up from 600,000 before lockdown. It expects online sales this year to jump to £5.5bn.
“They’ve doubled the size of that business in a very short space of time,” said Richard Hyman, a retail analyst.
The supermarket’s announcement that it would hire 10,000 “pickers” to seek out online orders directly from supermarket shelves, as well as 3,000 new drivers, places Tesco squarely into the fold of companies doubling down on online grocery deliveries.
Tesco’s move could allow it to leapfrog digital-only rivals, such as Ocado, experts said.
In July, Ocado boasted that it was the country’s fastest growing grocer thanks to a new partnership with Marks & Spencer, which is set to begin next month. “The world as we know it has changed,” said Tim Steiner, the Ocado chief executive. “We have seen years of growth in the online grocery market condensed into a matter of months; and we won’t be going back.”
But Ocado’s recent success risks being overshadowed by Tesco’s expansion, which it managed to carry out relatively cheaply, experts said. Tesco’s aggressive expansion also contrasts with Ocado’s new partner M&S, which shed 7,000 jobs last week.
“It’s actually Tesco that’s growing a lot faster than Ocado in the online grocery market at the moment, from a much bigger base,” Clive Black at Shore Capital said. “Ocado’s business model is very capital-intensive. It costs several hundred million pounds to put down an automated warehouse. Whereas Tesco has been able to double its capacity in three months at no capital cost apart from leasing some vans.”
Ocado’s investment in robotic technology, which automatically pick up items from warehouse shelves, bag them and load them into trucks, means the business faces high expansion costs that risk slowing growth.
Tesco’s people-powered approach may be costly too, but it gives it a head start over Amazon as the titan plans to expand free grocery deliveries across the country by the end of the year.
Amazon’s plan to dominate grocery delivery has been clear for years, but Tesco will hope its customers stay loyal. “Amazon is a tremendously strong, successful business but it’s not brilliant at everything,” Mr Hyman said. “There are some things that Tesco is much better at, and one of them is food retailing.”
With its 26pc market share of UK groceries, according to Kantar, Tesco may see its expansion into online as a way to cement its lead against discount rivals such as Aldi and Lidl, with 8pc and 6pc respectively. Tesco’s share of online groceries is thought to be greater still, above 33pc.
However, experts warned that the economics of online versus in-store orders were not as rosy as everyone might believe. “No one really makes money retailing food online,” Mr Hyman said. “This is the biggest elephant in the room.”
But lockdown has transformed the economics of online grocery deliveries. “Until recently, for most of the retailers it was marginally loss-making to break even at best,” Mr Black said. “It’s now profitable.”
That’s because delivery vans are operating at maximum capacity.
However, there remains a risk that once the restrictions of the virus are all lifted, demand for online deliveries could dip, leaving supermarkets with an increased reliance on a loss-making division.