It is still far too early to say we are heading into post-lockdown exactly. But to paraphrase Churchill, perhaps we are at least seeing the end of the beginning. Now seems like a perfect opportunity, then, to consider some big names like Tesco (LSE: TSCO).
Supermarket sweep
Supermarkets, of course, have been deemed essential since the start of lockdown. Tesco and others reported a boost in sales on the back of panic buying in the early days. Since then, along with rivals Sainsbury’s and Ocado, Tesco has seen online shopping come into its own.
I suspect then, that supermarkets are one of the few sectors that may truly benefit from Covid-19. Extra costs have been incurred through social distancing measurers in stores, of course. But sales levels have continued through lockdown, so Tesco seems to be in a strong position.
In fact a report this week showed that sales at Tesco and Sainsbury’s outstripped rival Aldi for the first time in a decade. In the 12 weeks to 16 May, which encompasses all of lockdown and the preceding three weeks of panic buying, saw sales at Tesco rise 11.7%.
Interestingly, lockdown may have forced a fundamental shift in the online shopping arena for Tesco. The company has expanded its delivery and click-and-collect facilities in order to meet increased demand.
It is also conceivable that consumer preference for shopping methods may have also shifted. People are spending more on each shop, which makes sense. Think of online delivery for a big weekly shop rather than popping into your local Tesco to pick up your dinner each night.
It also seems likely that at least some of those consumers who shifted to online shopping by necessity, will stay with it for convenience. With its already strong online presence and newly expanded capacity, Tesco seems in prime place to take advantage.
Changing the benchmark
One spect that does put me off Tesco as an investment, however, is recent a recent technicality. Tesco removed Ocado from a custom benchmark it uses to measure its performance. By removing Ocado, Tesco was able to pay out bonuses for outperforming its peers.
Tesco’s argument was that Ocado is a technology firm and therefore no longer comparable to supermarkets. However, I think this is questionable. Admittedly, Ocado has started to sell its own automated warehouse model. But then Tesco has a range of businesses, not just grocery sales.
Using this technicality to allow bonuses to be paid worries me. At the very least, it doesn’t seem the most robust management attitude towards increasing shareholder value.
Looking at the share price itself, which has hovered in the 210p to 260p range for a while, doesn’t help. I can’t help but think there may be more value to be had by looking at one of the other supermarkets.
