Tesco shares remain fragile as Amazon maintains its UK retail charge

• Tesco shares down 25.10% in the year to date
• Downward pressure tests Tesco share price support at 220p
• Net debt down 2.8% in 2020/21 despite the pandemic
• Ready to trade the Tesco share price? Open an account today

Why will Tesco shares take time to respond to the lifting of Covid-19 restrictions?

Last month was seen as a positive one for many leading FTSE 100 stocks, but the Tesco share price was somewhat flat, experiencing a minor 1.26% rise to 224.75p. It’s still a far cry from its price well north of 300p in February 2021 - just days after its £5bn dividend and prior to its unexpected share price crash worth 26.7%.

June promises to be another uncertain month for the UK’s largest supermarket chain. Tesco’s Q1 2021 trading update is set for 18 June. Nevertheless, it’s unlikely to be until Q2 2021 that the company experiences anything like a post-lockdown sales boost with the end of all Covid-19 restrictions still slated for 21 June.

Is price competition and convenience still set to plague the Tesco share price?

There are issues that will continue to rear their head for Tesco in the post-pandemic economy. First and foremost, Tesco will continue to be under pressure from low-cost supermarket chains like Lidl and Aldi. Although this pressure has subsided somewhat in the last 12 months, with shoppers gravitating to the bigger supermarket chains for convenient online orders, it is sure to return once Britain enters its ‘new normal’.

Tesco’s proud status as the UK’s number-one retailer is also at risk. If forecasts are to be believed, there will be a changing of the guard involving Tesco and Amazon by 2025. Amazon’s UK-based sales are expected to hit £77.1bn by 2025, which should eclipse Tesco’s estimated sales of £76.1bn for the same year. These figures are based on a report from Edge by Ascential’s research arm, Edge Retail Insight.

Although Amazon remains a relatively small fry in the UK’s edible grocery sector, it registered 17.6% year-on-year (YoY) growth in 2020, as consumers sought convenience and accessibility. Edge Retail Insight believes ‘digital marketplace giants’ like Amazon will continue to thrive, growing their online grocery footprint, while also launching additional Amazon Fresh shops nationwide.

Tesco’s 2020/21 preliminary results offer some cause for optimism

There are reasons for Tesco shareholders to be broadly optimistic for the longer term. Edge Retail Insight’s recent study also noted Tesco is an ‘omnichannel marketplace giant’ that has the capability to rapidly expand its online capacity.

Within its 2020/21 preliminaries, Tesco reported a 77% rise in online sales, said to be worth £6.3bn. This was achieved after doubling its online capacity to 1.5 million weekly orders.

Tesco’s full-year results also pointed to the impact of its Aldi Price Match, launched in March 2020, which offered like-for-like prices on more than 500 products sold by Aldi. Furthermore, the £8.2bn sale of its Asia concerns helped to reduce the company’s overall net debt to £12bn.

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