Martin Kuruc, country CEO of Tesco Stores SR, has some very clear ideas about how shopping in Slovakia is going to develop, as well as the responsibility retailers have towards not just customers and communities, but the planet itself.
The Slovak Spectator spoke with Kuruc to hear his views on how inflation has affected shopping habits in Slovakia, the use of artificial intelligence in retail, reducing food waste, and what Tesco has planned for its customers in the future.
How has inflation affected consumer habits in Slovakia?
The general trend is towards greater discipline. More customers are shopping with a shopping list in their hands and tending towards [buying] cheaper products. They are focusing more on discounted goods and own-brand products, too. The number of products they buy per shopping trip is smaller, but they shop more frequently.
Are consumer habits in Slovakia different to those abroad?
No, the trends are more or less similar. But in western Europe we see things that we do not see in Slovakia. For example, people cooking more at home instead of eating out in restaurants. This means a rise in the sale of frozen foods and chilled ready meals. We do not see that trend in Slovakia to such an extent. But this is perhaps because the out-of-home food market in Slovakia was not previously as strong as in western Europe.
What is interesting is that while we were expecting a decline in demand for healthy food, food reflecting consumers’ special eating habits or plant-based alternatives to meat, this has not happened in Slovakia. But Germany and some other western European countries have reported a decreasing interest in organic and bio products, which is very logical, as these are usually more expensive.
How has inflation affected your sales policy?
We see the impact of inflation on household budgets is very strong and that is why we have continuously introduced various promotions and benefits for our customer to help them reduce the inflation impact on their budgets. At the start of the year, when we identified a trend of falling prices on world markets for certain food commodities, we adjusted our food prices to take this into account. Since January we have gradually reduced prices on about 700 products and in April we extended this to 2,000 products. These include basic foodstuffs but also drugstore and cosmetics products as well as necessities for children, such as nappies, baby food, etc. These discounts are on average between 5 and 15 percent. Moreover, every Monday pensioners can get an extra 5 percent discount on their whole purchase.
We also signed up to the so-called anti-inflation guarantee – an initiative by the Agriculture Ministry and retailers to cap prices of selected foods for three months, until June 20. Under this scheme, Tesco has promised to keep the prices of more than 50 products below a maximum guaranteed price. Given the high volatility of prices on world commodity markets and the ban on selling products below purchase price in Slovakia, this is quite demanding. It was only one of multiple activities that we introduced.
What are the current trends in the retail sector in terms of types and sizes of stores?
The general trend is to reduce the selling area as customers are now going to the shops more often, making smaller purchases, thinking more about what to buy and focusing on fresh food more than on grocery or frozen food, which reinforces the trend of more frequent purchases in smaller stores. Tesco is the only multichannel retailer with 157 outlets of all types and sizes from large hypermarkets to supermarkets to smaller express stores, the latter of which cater to the trend described above.
We also plan to open smaller format stores in the future - in Kremnica and Levoča, where we will be introducing a unique project in a UNESCO zone.
Smaller format stores enable us to get much closer to the customer, even in places with a lower population density. We also offer online shopping with the choice of home delivery or pick-up at a hypermarket. We stopped our 24/7 service – none of our stores are open 24 hours a day – as interest among customers for this service declined. We recently launched, within the convenience format, the Žabka franchise. These are small stores targeting a different group of customers.
What was the thinking behind this?
We had a good experience with this format in the Czech Republic, where the Žabka brand has been around for over 10 years. We brought it to Slovakia in 2020. We saw an opportunity [for it] especially in Bratislava and its surroundings, and in regional towns and larger settlements in western Slovakia. Today, there are 27 Žabka stores. Over a small area they offer a very decent range of fresh and non-perishable foods including fruit, vegetables, refrigerated foods plus a wide range of additional services from takeaway coffee and quick simple snacks, to charging of mobile phone credit and pick-up of deliveries from online food delivery services Wolt and Foodora.
How is online shopping at Tesco evolving?
Tesco introduced its online shopping and home delivery service more than 10 years ago. Of course, this service was very popular during the pandemic, but it has remained popular post-pandemic. Our service covers 3.4 million people in Slovakia, or 1.3 million households, which is some 65 percent of all households in Slovakia. We keep expanding this coverage, but our primary objective today is to improve the service’s quality. We currently offer same-day delivery, which is starting to become a market standard, and we have also shortened delivery windows from two hours to one. In addition to our home delivery service, we offer grocery deliveries by Wolt or Foodora. We also offer a fast delivery service from our small stores, either Žabka or Tesco express.
We are now thinking about how to improve the service, perhaps by expanding the range on offer. One new thing we are working on implementing is the Tesco Online Club – members are receiving special deals such as free delivery.
Have you calculated whether there is a lower carbon footprint if customers order goods online and have them delivered compared to if they go to the store themselves?
This is an interesting question. We calculated kilometres driven with our delivery service versus individual shopping and found the difference is relatively substantial: 37 percent kilometres less with our delivery service. We have not converted this into saved emissions as that depends on the chosen route and type of vehicle used, but there is a substantial saving there.
With our last mile delivery service we use both our own fleet but we have a very strong partner – DoDo. With the help of artificial intelligence and the latest technology, it plans routes as economically and efficiently as possible and with the smallest carbon footprint possible.
There is more and more talk about the negative impact of ultra-processed foods on people’s health. How are retailers reacting to this?
It is our duty and our responsibility to give customers food that is healthy and whose production is sustainable, because today, a huge amount of greenhouse gas emissions are generated by the production, distribution and sale of food. In particular, the carbon footprint of animal-based food is incomparably higher than that of plant-based alternatives. So the gradual change in customer demand through expanding and democratising the offer in terms of VAT is clearly the direction we want to go. I definitely see a big role for the government and the EU in this regard, for example, through value added tax and subsidies. The current situation in Slovakia is that the VAT on basic foods, which are mostly animal-based, is 10 percent, while VAT on other foods is 20 percent.
In terms of Tesco, our long-term strategy and ambition is to bring tasty, sustainable and healthy food to our customers and help them to live a healthier lifestyle. We have committed to increasing our share of healthy foods, measured on the basis of nutritional value, to 53 percent by 2027. One way is through modest adjustments to recipes. So far, we have reformulated recipes for more than 300 own-brand products to make them healthier, completely eliminating from them mechanically separated meats, reducing sugar, fat, salt, artificial colours, and solidified fats, and increasing their vegetable, fruit and fibre component. In addition, we are expanding our offer of healthy foods and foods we sell under the label ‘free from’, for example, gluten-free or lactose-free products, to meet customers’ special dietary needs.
What is the current share of goods from Slovak suppliers in Tesco stores?
The share of Slovak products in Tesco’s turnover has been somewhere between 40 and 50 percent for a long time. This share has increased thanks to the ability and capacity of Slovak fruit and vegetable producers to supply, especially in season, temperate climate zone vegetables and fruits. The share of Slovak fruit and vegetables during their season is up to 60-70 percent.
What are some of the problems you encounter when using Slovak suppliers?
Slovak producers supply quality food as Slovak legislation is very strict. The biggest obstacle is capacity, as our suppliers have to be prepared to supply the volumes we need either for the Slovak or the central European market. But for partners who are not able to meet our standard supply requirements, such as small local suppliers, mostly bakers and dairy producers, we can offer their goods as local products only in their locality.
What are your thoughts on complete self-service stores?
The trend is to make the customer experience of shopping in a store fast and independent of any kind of service. In the United Kingdom, in a few stores Tesco is testing a complete self-service concept where the customer can shop using just the Clubcard app on their phone. I think this is the future of retail, or at least a part of its future. We are not planning a similar pilot scheme in Slovakia at the moment, but our Scan & Shop or Scan & Shop mobile models are very close to it. We introduced this service in Slovakia in 2016 and it has become really popular. This year we are expanding this service to all our hypermarkets in the form of Scan & Shop scanners.
In what part of the retail sector do you think end consumers will eventually encounter the greatest use of artificial intelligence?
The retail sector uses artificial intelligence quite a lot, for example in logistics, where it helps to plan routes for suppliers or home deliveries, for better calculation of supplies to reduce food surplus and food waste, and in recruitment of new staff. But this is not very visible to customers – they see, and will see it more often, in personalised offers, tailored to the preferences of individual customers.
Where do unsold foods from Tesco stores end up?
Food waste is a problem that was not talked about in the past and is talked about relatively little now given how big a problem it is. As much as 10 percent of greenhouse gas emissions worldwide today are due to food waste and food loss, that is, food that is grown and produced and which then ends up not being consumed. This is an absolutely shocking figure.
Tesco resolved to address this issue several years ago. In the 2016/2017 financial year we published our food waste data for the first time. Since then, we have managed to reduce food waste by 69 percent, and lowered it further last year. One measure we introduced is a better ordering policy. But as people want to buy, for example, bread or rolls, even at the very end of opening hours, it is impossible to reduce food waste to zero. Another step we have taken is that we now offer food nearing its shelf life at reduced prices. Food which still remains unsold after that is donated to a food bank or its local partners so that this food gets to people in need. If we cannot donate food that is still fit for human consumption, it is used to feed animals. Anything else left after that is sent for composting. We are actually able to redistribute over 91 percent of food still fit for human consumption. But our ambition by 2025 is that no food still fit for human consumption ends up in landfill
What do you think of current legislation on unsold food and food waste?
Legislation has moved forward significantly in this area. There is now a split between use-by and best before dates and, in certain circumstances, retailers are allowed to sell products after their best before dates to the final consumer. Where the legislation could definitely be improved is with regard to restaurants and similar services. These, together with households, account for half of the food waste created. Current legislation makes the donation of uneaten restaurant meals so difficult that it is almost impossible.