Tesco (LSE: TSCO) has been making headlines lately with the ousting of several executives as a result of discrepancies in its expected profits for 2014. This is nothing new when it comes to big box storeseven across the pond into the USA.
Several well-known chain merchants in the US have been involved in some scandal or another see, for example, Targets (NYSE: TGT.US) data breach scandal that materialised last December. Despite that, comparable sales have mainly stayed relatively flat between 2013-2014 and Targets REDcard infiltration still continued to grow. Considering December was less than a year ago, not much has been mentioned about the breach as the new holiday season looms closer. In my opinion, Tesco will rise from the flames of scandal with small wounds, and hopefully a greater sense of integrity with the new management in session.
Tescos business model follows the same as Americas Target, utilising economies of scale to deliver basic products to consumers at lower prices, and taking advantage of distribution warehouses and channels to transport goods to thousands of locations. Italso offers many of the mainstream brands that consumers recognise we even share some brands like Colgate and Dove (Colgate-Palmolive and Unilever, respectively). Comparatively, Tesco touts a much larger store growth rate, having added 232 stores in the UK in 2014.
Unlike Tesco, Target does not boast the home-delivery service the same way Tesco has created. In fact, home-delivery service is a new concept in American markets: Americans still depend highly on Amazon for shipment of necessities directly home. Currently, only Giant Food hosts a similar national programme named PeaPod that has not infiltrated the USmarket much, with e-commerce sales of groceries remaining stagnant. But Whole Foods is even dabbling with the notion of home-delivery online grocery shopping with the unveiling of Whole Shopper.
Tesco, on the other hand, states that the home grocery delivery service has had more than ample growth in the last year and is still projected to expand strongly in the market. In 2013 its first year of launch Tesco reported a 12.8% increase in online sales knowingly attributed to the launch of the home-delivery service. The number of customers usingthe service has grown to a whopping 200,000 customers (including our very own Mark Rogers!) by fiscal year-end 2014. Tesco isalso starting to offer a Click-to-Collect offering as well to have groceries gathered for store-pickup. This concept, in comparison, is not new in the American markets, with Harris Teeter being the main company offering this feature.
If Tescocontinues to cater to the digital age and provide superb online platforms for consumers, the company can only expect major growth over the long term. And, according to the latest annual report, thats exactly what itintends to do.
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Corrina Quader has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
