£104m logistics savings at Tesco

As part of its £1.5bn cost savings plans, Tesco has made £104 million in savings in its logistics and distribution operations.

The news came out in the Tesco year end 2018 results. Total savings amounted to £820 million since 2016. £541 million have come from changes to the operating model, and £174 million have been saved on goods that are not for resale.

As a result, and despite increased competition from discounters, the grocery giant’s profit grew by 81% to £1.84bn in the year to 24th Feb. Sales were up 2.3% to £51 billion.

The aim of Tesco is to achieve a profit margin of between 3.5-4.0%. Currently that sits at 2.9%. The year end report said that there are two areas where margins are below average – general merchandise and the online channel on all categories.

Chief executive Dave Lewis said: “We have further improved profitability, with group operating margin reaching 3.0 per cent in the second half. We are generating significant levels of cash and net debt is down by almost £6bn over the last three years. All of this puts us firmly on track to deliver our medium-term ambitions and create long-term value for every stakeholder in Tesco.”

During the year, Tesco completed its takeover of Booker and is looking for a synergy benefit of c.£60m in the first year, growing to a cumulative c.£140m in the second year and reaching a recurring run-rate of c.£200m per year by the end of the third year.

Lewis said: “I am delighted to have completed our merger with Booker, and we are moving quickly to deliver synergies and access new growth, making the most of the complementary skills in our combined business.”