Shares in Tesco (TSCO) ticked up 1.6p to 238.5p at the open on Monday, investors applauding reports Britain’s biggest retailer is working on a new Amazon-style loyalty scheme designed to bring services together.

The exciting news foreshadows full year results on Wednesday (10 Apr) expected to show growth in sales and profits. Investors will be especially keen to see if Tesco has extended an impressive run of quarterly like-for-like sales growth amid fiercely competitive market conditions.

LOYALTY PAYS

According to The Sunday Times, Tesco has been beavering away on a new loyalty scheme inspired by Amazon Prime, which would give its legions of customers greater incentives to sign up to the supermarket titan’s bank and mobile phone services.

Tesco is said to be mulling a way to bring its various loyalty tools together (Clubcard, Tesco Pay+ and others) to replicate what Amazon has done with the Prime subscription service.

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The Sunday Times suggests the new scheme is likely to be linked to the Tesco Pay+ app, operated by Tesco Bank, which enables customers to amass Clubcard points while making payments.

Roughly 15m people in the UK are members of Amazon Prime, which offers customers faster and cheaper delivery alongside the ability to stream movies and boxsets. Crucially, Prime gives Jeff Bezos-bossed tech behemoth Amazon a wealth of knowledge about customers’ shopping habits.

PROGRESS EXPECTED

Investors will be looking for further progress in the core Tesco store chain when the grocery giant serves up results for the year to February on Wednesday, with CEO Dave Lewis (pictured below) pressing on with his thus-far fruitful recovery strategy.

Management will probably have to field questions regarding Tesco’s decision to cut up to 9,000 jobs by closing fresh food counters at 90 of its stores.

Shore Capital’s estimates call for improved adjusted pre-tax profit of over £1.8bn (2018: £1.3bn) on sales north of £64bn (2018: £57.5bn), as well as a hike in the recently restored dividend from 3p to 5p.

Rivals Sainsbury’s (SBRY) and Marks & Spencer (MKS) have both been distracted by strategic activity in recent months, during which Tesco has been quietly focusing on improving its core business. Tesco should also assure the market it remains on track to achieve its stated 3.5%-to-4% margin target, while Shore believes there is scope for pleasant surprises around free cash flow too.

CONSIDERABLE COMPETITIVE THREATS

Tesco cannot afford to rest on its laurels however. According to the latest grocery market share figures published by Kantar, Tesco’s sales grew 0.5% to achieve market share of 27.4% in the 12 weeks to 24 March 2019.

This market share is 0.2% lower than a year ago amid fierce competition. Aldi’s sales shot up 10.6%, helping the German upstart achieve a new record high market share of 8%, while fellow German disruptor Lidl was the second fastest grower, with sales up 5.8% for market share of 5.6%.

Sales at Sainsbury’s dropped 1.8% for a 0.5% year-on-year market share decline to 15.3%, while would-be merger partner Asda built on two years of continuous growth and increased sales by 0.1% to become the second largest retailer in Great Britain with a 15.4% market share.

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Issue Date: 08 Apr 2019