A new dynamic as Tesco increases AI in supplier negotiations

Tesco boss Ken Murphy could probably be excused in pausing for a breather after a set of full-year results revealed whopping profits approaching £3bn, like-for-like retail sales up almost 7% and a return to the sort of profit margins last seen before the pandemic.

But in news its traditional supermarket rivals won’t want to hear, Murphy revealed the retailer was pushing ahead with its next big project, a range review across its network of Express stores.

The move, Phase 2 of its Fit for Purpose range review, which has already seen sweeping changes across more than 40 categories in larger stores, also sees Tesco become the latest supermarket to use AI-driven technology to underpin its strategy.

Fit for Growth’s robust talks

Murphy revealed Tesco was using a new range optimisation tool that will automatically select bespoke ranges based on store location and demographic.

With almost 2,000 stores across the UK, that is some ask, even for a rampant Tesco – and so will it be of suppliers, who will no doubt have to face some tough conversations with Tesco (or its computers) in the weeks to come.

Fit for Growth has already seen robust talks between Tesco and its suppliers, who Murphy thanked today for their “fantastic” support in the first phase of the review, which wrapped up in the past two weeks.

But despite being billed by Tesco as its biggest range review since Dave Lewis’s Reset, Fit for Purpose has attracted little by way of public fallout with suppliers, until now.

Tesco’s volume growth

And with Tesco bringing volume growth back in to the business in the second half of the year, as food inflation has eased, suppliers will within reason be happy to go with the flow if it can manage something similar in its Express lineup.

However, the increasing use of AI in its supplier negotiations will provide a fascinating new dynamic, alongside a very human one, in the shape of former Aldi boss Matthew Barnes, who took up his post as UK CEO a few weeks ago.

Murphy said Barnes was currently “doing a lot of listening” but both within and outside Tesco most experts don’t expect it to be too long before the discount king’s arrival adds yet another fascinating dimension to a Tesco machine that is going to take some stopping in the months ahead.