Learn Portuguese (Portugal): Tu gasta-lo no supermercado.

The verb is conjugated as gastas for tu (you). When a verb ends in -r, -s, or -z, we drop that final letter before attaching a direct object pronoun. The pronoun -o (it) then changes to -lo. So, gastas + o becomes gasta-lo.

Without the word tu, could gasta-lo mean 'he spends it'?

No! If it were 'he', the verb would be gasta. Because gasta ends in a vowel, the pronoun doesn't change to -lo. It would just be gasta-o. Seeing -lo attached to gasta tells you the original verb must have ended in -r, -s, or -z (in this case, the -s from gastas).

What does the -lo represent here?

-lo is a direct object pronoun meaning 'it', and it replaces a masculine singular noun. In the context of spending at a supermarket, it almost certainly refers to money (o dinheiro). If the noun were feminine, you would use -la.

Just to check, why is it no supermercado rather than em o supermercado?