Does any one have a view on the impact on Wincanton of Tesco's decision to move responsibility for storage and distribution in-house. My recollection from todays market report in the FT is that Tesco accounts for about 25% of its retail grocery revenue?
The recent contract wins with IKEA and Majestic Wine will help offset the revenue loss, but while Tesco's decision may not derail Wincanton's recovery it is clearly unhelpful.
I worked in Retail at Wincanton a few years back. I don't really know if Tesco's accounted for 25% then though, perhaps they did. If it is true then it's slightly less than 6% of Wincanton's total revenue. I should mention, I don't hold Wincanton shares.
I don't think that this is particularly devastating though, not on the bottom line anyway. I actually foresee higher distribution costs for Tesco in the short term. Wincanton are extremely competitive and usually offer good value on the costs of distribution. I'd go as far to bet that if you were to look at Tesco's management accounts and look for the distribution depot which operates at the lowest cost you'd probably find that it might just be a depot operated by Wincanton.
I do think it'll be interesting to see how that works out in the long term though, the only reason I can see Tesco's making this move now is if they plan to freeze their wages in distribution over the next few years and allow the minimum wage to catch up to the extent that they become just as competitive as Wincanton. If that is the case, then Tesco's are in for a bit of a hard time with the Trade Unions over the next few years. You'd have to expect that all over retailers intend to do the same.
I may well be overthinking their strategy here though, I probably am. It could just be that Tesco's genuinely need to cut back on distribution because they're not getting good value from the existing distribution structure and it's easier to cut the Wincanton staff because the redundancy liability will sit with Wincanton. And if that is the case then you'd have to wonder if Tesco's are doing that because they've lost market share, or the structure has to change due to something like click & collect and internet sales.
