Tesco chief executive Ken Murphy talks to ESM editor Stephen Wynne-Jones about the retailer's recent performance, the food waste challenge and the role of technology in the grocery space. This article first appeared in ESM's July/August edition.
With group sales of more than £61 billion (€72 billion) last year, over a century of history under its belt, and a market share that towers over any of its competitors – 27.7%, as of June 2024 – Tesco is one of the most influential names in British, and international, retail.
For the past four years, Tesco has been led by Irishman Ken Murphy. While his predecessor, Dave Lewis, may have been known as ‘Drastic Dave’ due to his fierce cost-cutting approach, Murphy is more of a ‘Mr Reliable’, navigating the British grocer through countless bumps in the road while maintaining a steady upward sales trajectory.
On the back of a 7.4% increase in group sales last year, the positive momentum has continued into the first quarter of 2024/25, with Tesco’s core UK and Republic of Ireland (ROI) business seeing a 3.6% increase in sales, year on year, while its overall retail businesses went up by 3.4%.
This has been driven – particularly in the UK – by Tesco’s commitment to value and the introduction of resounding promotional mechanics, such as Clubcard Prices and Aldi Price Match, the latter of which has been mirrored by other mainstream grocers.
“We know that value is still really important to our customers, with the cost of living still front of mind for many,” says Murphy, adding that Tesco has been the “cheapest full-line grocer” in its home market for well over a year now.
“We price-match Aldi on circa 700 products, we have over 1,000 products in our Low Everyday Prices offer, and we have around 8,000 exclusive offers per week through Clubcard Prices, all of which are helping us to keep down the cost of the weekly shop. The customer feedback on Clubcard is overwhelmingly positive – particularly with regards to feeling rewarded for loyalty.”
As well as pricing, Tesco has invested significantly in brand perception, encapsulated by the strong performance of its private-label ranges, particularly Tesco Finest, which saw sales grow by 12.5% in the first quarter, year on year.
“This investment in ranges like Finest has helped us to secure consistent net switching gains from premium retailers,” Murphy says, with reference to rivals such as Marks & Spencer and Waitrose.
Last year, Finest sales exceeded £2 billion (€2.36 billion), with “more than 23 million shoppers” purchasing from within the range.
Ireland And Central Europe
Outside of the UK, momentum has also been positive. In Ireland, where Tesco ranks a close second in terms of market share – 23.1%, to Dunnes Stores’ 23.4% – it recently opened five new stores “to a really positive response,” says Murphy, as well as rolling out customer-facing initiatives such as ‘52 Weeks of Little Helps’. It also plans to continue to roll out its Fresh First proposition in areas such as bakery and fresh produce, “as we invest in our in-store experience for customers, and how they shop with us.”
Elsewhere, Central Europe – Tesco has operations in Hungary, Slovakia and Czechia – has found the going tougher in recent periods, however, the group’s first-quarter results bucked the trend.
Back in April, Murphy told ESM that he hoped that the CEE market would “see some normalisation” in the months that followed – with Hungary, in particular, hamstrung by increased regulation – and so it has come to pass, with the grocer reporting a 0.6% like-for-like sales increase in Q1, and a 2.8% increase in volumes.
“Customer satisfaction in Central Europe is growing ahead of the market,” he says. “We’ve seen a really positive response from customers, in terms of the investment we’re making in price. We’ll continue to look for ways we can support them, with great value across their weekly shop.”
Food Waste In Focus
ESM’s interview with Murphy coincided with the recent Consumer Goods Forum Global Summit in Chicago, and Tesco has been a long-time supporter of the forum’s food waste reduction efforts, taking on the role of co-sponsor (alongside McCain) of the Food Waste Coalition of Action upon its establishment in 2020 – a role that continues today.
Tesco has been intensifying initiatives to reduce food waste for several years now. Among other efforts, the grocer has implemented a target-measure-act approach across its supply chain, as part of its Champions 12.3 commitment to halve food loss and waste by 2030.
“I’m a firm believer that what gets measured gets managed,” says Murphy. “Many in the industry agree that reporting is fundamental to understanding how much of an issue food waste is, and to show us how we can fix it, but we need to make sure that reporting is consistent and aligned across the industry, to paint an accurate picture. Tesco has long been an advocate for mandatory food waste reporting, to help measure and judge if real action is happening.”
He points to a recent report published by The Consumer Goods Forum and AlixPartners, suggesting that the true cost of food waste has been undervalued by as much as 50%, as an indication of the potential benefits that can come from addressing what has been a long-standing issue for the trade.
“I think the industry is making progress on demonstrating different initiatives and how interventions can have a positive financial impact,” Murphy says. “This type of evidence-building is really important. We’ve seen it with our customers, too, on food waste, by demonstrating that being smarter with food can help save money and the planet.”
On a customer level, initiatives such as the dedicated ‘Reduced in Price, Just as Nice’ sections in Tesco’s larger stores, “[which] make it easier for customers to shop quality discounted products in one location and help to pivot those common perceptions when it comes to food going out of date,” are having a positive impact, and Murphy believes that retailers should take their cue from the constrained economic circumstances facing many shoppers and come up with initiatives that help cut food waste and help them save money.
“We all know it’s not easy to perfectly plan your weekly shop in a way that leaves no food waste at the end of it, and I think every retailer is listening to hear what really matters to customers at a time when the cost of living is still very much in their mind,” he says.
“We conducted some research that told us over three quarters of UK households are throwing away unused or unopened food due to lifestyles, changing plans, or poor planning.”
More collaboration, particularly in pre-competitive areas such as tackling food waste, should be encouraged, with all retailers – regardless of size – having an important role to play.
“Just start with measuring,” is Murphy’s advice to businesses looking to get serious about food waste. “Understand the levels of food waste in your business and any outside factors, and then you can plan for how to reduce that. There’s always more we can do when it comes to food waste, and eliminating it should be our new national mission. That means everyone in the industry coming together to tackle the issue.
“Nothing can be solved overnight, but every little helps, and any step to reduce waste will start to make a difference.”
Tech-Led Innovation
As the retail industry evolves, so Tesco is seeking to invest more in technology, committing to AI-powered solutions to ‘drive productivity, competitiveness and value for customers,’ as it noted in its full-year results in April.
“We’ve been using AI for many years now, and as new technologies emerge that can give our customers a better experience, help our colleagues do their jobs better, or be more efficient and reduce our environmental footprint, we embrace them,” says Murphy. “The technology of today is more sophisticated, but our approach to innovation remains the same.”
One novel application is the group’s range optimisation tool, which automates bespoke product selection based on store location and demographic – “making sure that we’ve got the right products in an individual shop, to suit the local community,” says Murphy. “With thousands of stores in the UK, it’s a very scientific and data-led exercise, to make sure we do the best job for our customers.
“We are using AI to produce a bespoke product selection for stores, based on location and demographic, and from the work we have done to date, we have seen an improvement in customer experience of the shopping trip and improving scores when it comes to customers being able to get what they want.”
And with Mr Reliable at the helm, ensuring its customers get what they want is something Tesco has got very good at indeed.
