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

The Daily Telegraph - Business - - Front Page - By Han­nah Ut­t­ley

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.

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