Tesco sales jumped 30% in the first few weeks of the coronavirus outbreak as shoppers stockpiled before the lockdown but the supermarket warned the extra costs involved in feeding the nation during the crisis could add up to almost £1bn.
Dave Lewis, the chief executive, said the retailer had to adapt quickly as the extraordinary increase in demand put pressure on stores and the whole food supply chain. “Understandably, people were worried and we saw panic buying,” he explained. “We saw a sales uplift of around 30% as people began to stockpile, which then began to tail off as the UK moved into a lockdown.”
Tesco said affluent shoppers had bought the most – 10% of its customers accounted for almost a third of the extra sales, with stores in London experiencing the biggest sales uplifts. In the busiest week the retailer sold double the usual amount of baked beans and chopped tomatoes, at 6m tins and 3.3m respectively. Toilet roll sales were up 75%, while sales of liquid soap quadrupled.
Britons made almost 80m extra grocery shopping trips in March, setting an industry record for monthly grocery sales after shoppers spent almost £2bn more on food and drink than in 2019. However, while sales of groceries rocketed, Tesco said demand in other parts of its business had collapsed, with clothing and fuel sales both down 70%.
Despite the economic upheaval created by Covid-19, Tesco is going ahead with a final dividend payment worth £635m – making the total payout to shareholders about £900m this year. The decision could prove controversial, given the country’s largest banks and many insurers have cancelled their dividends after the Bank of England warned payouts should be considered carefully because of the turmoil.
Tesco said it had decided to go ahead with the payout as investors, who included 250,000 individual shareholders, had stood by the company during a five-year turnaround plan, when dividends were either cancelled or significantly reduced. The payment covers the financial year to 29 February, when the company had made a pre-tax profit of £1.3bn on sales of £64.8bn.
“We thought long and hard about our responsibilities here, not least because there are millions of people working hard and saving for their retirement,” Lewis said. “They do that by paying into pensions, Isas and other funds … the Tesco dividend in large part goes to them. We are in a strong position to pay out for the benefit of those people and believe that is right to do so.”
The comments came as Lewis spelled out the huge operational changes it faced as it grappled with the seismic shift in demand for groceries at time when a growing number of its employees were falling ill or self-isolating. Currently about 50,000 of Tesco’s 320,000 UK and Ireland employees are off work on full pay, with the company recruiting 45,000 people in the last fortnight to keep its stores and distribution centres running smoothly.
The UK’s biggest supermarket group said the full financial impact of the crisis on its finances this year was “impossible to predict”, with the need to employ extra staff for the duration of the crisis increasing its wage bill by anywhere between £415m and £580m, depending on the length of the government-imposed lockdown.
It flagged other expenses, such as the plastic shields installed at checkouts in thousands of its stores to protect staff, as well as large quantities of other safety gear, including gloves and hand sanitiser. Taken together, its UK running costs could increase by anywhere between £650m and £925m, the group said.
However the chancellor Rishi Sunak’s decision to grant a business rates holiday to retail and hospitality firms this year has given the major supermarkets a £3bn tax break. Lewis was at pains to point out that no Tesco workers were being paid out of the government’s emergency wage support scheme and that “in every scenario our costs far exceed £585m of business rate relief we’ve been given by the government”.
The independent retail analyst Nick Bubb said Tesco had “firmly knocked on the head the idea that it has been coining it of late”.