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Tesco Shares Down 5% – The Self-Service Tills Petition?

Tim Worstall
Tim Worstall trader
Updated 19 May 2022

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Key points:

Tesco (LON: TSCO) shares are down 4% this morning but the big question is what is causing this? There is a petition against the installation of self-service tills which has just passed the 100,000 signatures mark. It’s not going to be true that this has any significant effect upon trading or margins at present, But it could be a market for the future about attitudes towards margin retention. That’s something that needs to be thought about.

It’s also possible that American results (Target and Walmart especially) are casting a cloud over Tesco results in the UK. The issue being how well does a supermarket get to deal with the high inflation currently happening?

The petition issue can be seen as just people moaning of course. The rollout of self-service tills is a logical response to increasing minimum wages and the seeming labour shortage in the economy more generally. When the price of labour versus the price of automation changes then we’d expect one to start to substitute for the other. Indeed, we’d think management were missing a trick if they weren’t automating further in the face of such prices changes.

Tesco company

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On the other hand, a petition with 100k signatures against the idea isn’t something that can be entirely ignored. That’s some number of customers against the idea to some level of importance. If they feel strongly enough about it that they’ll shop elsewhere then that’s also going to affect margins.

The petition against self-service tills thus needs to be seen as a pressure against that labour saving automation, even as the preservation of margins argues in favour. A delicate balancing act for management there.

What might be more germane to the Tesco share price though is the performance of those American retailers. It’s a long assumed to be true piece of analysis that supermarkets – and other FMCG retailers – do not too badly out of inflation. For inflation largely is an increase in the price of the things sold in supermarkets. Thus if inflation is happening then supermarkets must be keeping up with it.

That could even be generally true in a theoretical manner, it doesn’t seem to be true in this current burst of inflation though. Both Walmart and Target over in the US reported declining margins as a result of inflationary pressures. Part of this could be that the inflation has been largely in the sorts of things not sold by them – cars and fuel for example – but perhaps it’s also that those old memories of which companies do well in inflationary times aren’t quite as valid as something.

If it’s happening to them over in the US then might it not also be happening to Tesco here in the UK?

It could even be that the self-service till petition is just adding to the uncertainties – if Tesco margins are going to be under pressure and also there’s a consumer revolt against margin maintenance through automation then there’s that double whammy?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.