FT Live: Future of Retail 2024: Tesco CTO overhauls legacy IT and shows how to maximise digital RoI

Tesco had an “ageing tech stack” when Guus Dekkers joined them last decade, admitted the grocer’s Chief Technology Officer at the FT Live: Future of Retail 2024 event in London this week.

He outlined how this has been overhauled, alongside seeking a return on digital investment by adopting a build and tech reselling approach.

A new micro-fulfilment in-store picking software solution was recently rolled out at Tesco as an example of this approach. It has been offered to non-core rivals in New Zealand as a way to monetise its build, not buy technology approach but a wider roll-out is imminent.

Tesco’s technology approach favours in-house expertise to prioritise the good integration of systems. But the strategy, discussed by Tesco’s CEO separately in the morning at the FT event also allows for reselling and effective partnerships, should the grocer decide to go down that route.

The grocer’s technology approach is flexible enough to meet the changing needs of this decade where digital marketplaces, quick convenient omnichannel commerce, delivery or collect options, automation and data mastery are to the fore.

“Essentially, we’ve encapsulated our legacy IT and added a flexible services layer on top,” explained Dekkers, while stressing that the in-house tech team is dedicated to making the best possible return on investment (RoI) that it can, whether that is via great integration or re-selling its technology.

“We are looking to scale up the micro fulfilment software customer base soon,” added Dekkers. “We used some third party components [from Mirakl] but built the solution ourselves as it is super important to us to have a consistent user experience (UX).”

Retaining in-house control allows Tesco to do this.  

It did previously have a .com operation a few years back but it was shut down as “it didn’t make economic sense,” said Dekkers, during a Q&A at the FT event.

“We have a much more integrated digital marketplace offering now. But it is still early days for this offering. Our app has also grown in its capabilities as we expand our technological capabilities.” 

Huge investments incoming

The approach of Tesco was supported by fellow panellist Brian Kalms, EMEA Retail Technology Lead at the AlixPartners consultancy which has run surveys in this area.

He agreed that an incremental approach to technology roll-outs – combining in-house and external expertise where needed to maximise value creation – is valid.

After all, it can be risky to run a comprehensive ‘rip and replace’ entire technology stack overhaul project, rather than encapsulate it as Tesco has done.

“There are huge investments in retail technology incoming,” said Kalms, as he explained how personalisation, AI, social media commerce and data will all cause money to be poured into ageing technology stacks in the near-term.

Retailers must overhaul their IT in a sensitive manner, however, as Tesco has done because as Kalms warned: “There is undoubtedly scar tissue out there in retailers’ systems [that must be navigated].”  

Kalms cited Alixpartners’ 2024 Digital Disruption Executive Survey that polled 750 C-suite representatives across sectors in America and Europe to prove his point. A slide he shared from his consultancy showed that: “47% think their old IT is holding their growth expectations back.” 

That compares to 96% of retailers, who deem their IT to be under control, expecting to see growth. Getting on top of your tech stack really does pay off.    

The survey also showed that:

• 81% of retailers centre digital investment decisions in the tech team.

• Only 69% across all industries do this, showing retailers are ahead of the curve in giving technologists their heads. Whether this is the best way to maximise RoI is debatable as C-suite oversight in decision-making is required as well.

Whatever approach they adopt - in-house or external - and however much they empower tech teams, the boardroom or a mixture of both, retailers must find a way to modernise their technology to fight off e-commerce rivals and thrive in an increasingly digitised customer environment.

Tesco offers up one blueprint. But each retailer must develop their own future technology strategy and stay atop of it.