Tesco profits from the health crisis and government aid

As a result of changing consumer behaviour during the health crisis, Tesco increased its turnover by 6.6% and its gross profit by 4% in the six months through August. Yet the supermarket group also faces criticism.

Maintaining momentum

Ken Murphy, Tesco’s brand new CEO – only last week he joined from pharmacy group Boots – starts of very pleased. “I am really happy with the strategy and direction of the company,” he said. “My job is to keep momentum in the business and focus on delivering a great Christmas.”

There sure seems to be momentum, and the health crisis is no stranger to this. Tesco reported that its food sales in the UK grew by more than 9% in the six months to 29 August, as the coronavirus outbreak has changed consumer behaviour. The average basket size has increased by 56%, with customers going to the supermarket less often but buying more. Sales in convenience shops increased by 7.6%, compared with barely 1.4% for supermarkets.

90% growth online

However, the biggest development concerns e-commerce: online sales increased by 90% this summer. Tesco has doubled its home delivery capacity over the last six months and now offers some 1.5 million delivery slots per week. In contrast, clothing sales have fallen by 17.2%.

In total, the supermarket group recorded a turnover of 26.7 billion pounds (29.3 billion dollar), an increase of 6.6%. Gross profit increased by 4.4% to 1.2 billion pounds (1.3 billion euro). While costs related to the health crisis – such as additional staff and security measures – reached 533 million pounds (585 million euro), the UK’s largest food retailer also benefited from 249 million pounds (273.4 million euro) in tax benefits granted by the British government to businesses affected by the pandemic.

Controversial dividend pay-out

Meanwhile, criticism is mounting over the decision to pay out 315 million pounds (346 million euro) in dividends. Critics denounce that, in doing so, the received governement aid does not benefit the public but disappears into the pockets of shareholders. The dividend has been increased by 20% compared to the previous year.

For the rest of the financial year, the retailer is now expecting a profit “at least” at last year’s level. A new CFO will soon join Ken Murphy: Imran Nawaz will arrive next year from food ingredient supplier Tate & Lyle. He will replace the current CFO Alan Stewart.