Tesco shrugs off supply concerns as sales surge

Tesco has seen sales and profits grow faster than expected as Britain's biggest supermarket group shrugged off the pandemic impact.

In the six months to August, Tesco said it "outperformed" the grocery sector, but also flagged that the sales surge could now start to "fall away".

But it would still mean stronger profits growth this year than was first thought, a Tesco statement said.

It came as rival Morrisons said it was recruiting 3,000 staff for Christmas.

The jobs are in distribution centres and manufacturing sites across the UK, ranging from warehouse and production staff to pickers and packers, as well as other skilled roles such as fork-lift truck drivers.

Like Morrisons, Tesco is adjusting to labour shortages and supply chain problems in the run-up to the key festive period.

However, chief executive Ken Murphy said the company was "in good shape for Christmas", adding he believed the company's resilience was due to its "long-standing partnerships with suppliers".

"With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset," he said.

But he told a conference call with journalists that there would still "be bumps in the road in the run-up to Christmas. We're seeing our share of challenges".

'Biggest fish'

Analyst Sophie Lund-Yates, from investment platform Hargreaves Lansdown, said "Tesco's enormous scale means it is weathering the supply chain crisis better than others. It is times like these when being the biggest fish in the pond really counts.

"The size of Tesco's distribution network also can't be overstated, which again gives the group the flexibility to deliver the goods at scale."

• Morrisons promises 'good Christmas' for shoppers

• Aldi says deliveries normal despite driver shortage

Tesco's group revenues jumped by 5.9% to £30.4bn for the six months compared with the same period last year. Operating profits increased by 28% to £1.3bn for the period.

Sales in the first six months of Tesco's financial year rose 2.6% to £27.3bn, while UK like-for-like sales rose 1.2%, having risen 0.5% in the first quarter.

Analysts said Tesco was benefiting from its huge online business, from a pricing strategy that matched the prices of German-owned discounter Aldi on around 650 products and the success of its Clubcard Prices loyalty scheme, which offered lower prices to members.

But the company has again signalled concerns about possible food price inflation, following Tesco chairman John Allan's warning last month in an ITV interview that costs could rise by 5% this winter.

Britain's biggest retailer is on a bit of a roll. Trading has been better than expected and with impressive results. Even Tesco Bank has bounced back to profitability.

The retailer says it has managed to keep hold of most of the new customers it gained during the pandemic after doubling its online slots.

The focus now is delivering Christmas amid a whole host of supply chain challenges. Boss Ken Murphy says Tesco is in good shape for the all-important festive trading and that the business has many unique advantages. For instance, it makes extensive use of rail to deliver supplies.

Tesco sends 65,000 containers across the UK by rail every year and it wants to increase that to 90,000 in the next few months to help mitigate the shortage of drivers.

Tesco's huge scale may also help it weather the storm, but Mr Murphy also expects "bumps in the road" ahead.

'Headwinds'

Julie Palmer, partner at Begbies Traynor, said likely price rises, along with the HGV driver shortage, pointed to the future looking "more uncertain" for Tesco.

"The supermarket has already warned the UK government that the shortage of lorry drivers could cause severe disruption to deliveries, causing panic buying in the run-up to Christmas," she said.

"While this may push up sales temporarily, it also means chaos when stock runs out and rising costs for the supermarket, which it may struggle to pass on to its customers in a competitive market.

"Add supply chain disruption, an energy crisis, wage inflation and a lack of workers to the basket, Tesco has considerable headwinds in the final quarter of the year."

Meanwhile, Morrisons said it was anticipating that Christmas trading would be busier than usual as "customers try to make up for last year's restricted celebrations".

The company said its new jobs, with pay starting at £10 an hour, included both permanent and temporary roles.

Morrisons underlined in its statement that it "welcomed" 16-24-year-olds, saying that full training would be given, so "no prior experience is required".