Tesco has defended its plans to pay a £315 million dividend to shareholders despite the company enjoying a business rates break worth £249m since the outbreak began.
Online food sales doubled and pre-tax profits surged during the crisis, with the UK’s largest supermarket posting a 28.7 per cent rise in pre-tax profits to £551 million in the six months to the end of August.
New chief executive Ken Murphy hailed last week as the ‘biggest in our history for home delivery’ and Alan Stewart, the supermarket’s finance director, said paying dividends to shareholders was ‘the right thing to do’.
The half-year dividend Tesco is paying out is 20 per cent bigger than in 2019.
Mr Stewart revealed that, over a full year, Tesco’s coronavirus-related costs would add up to £725m while the rates relief would be worth £532m.
The supermarket enjoyed a huge surge in online sales during the pandemic (stock photo)
New chief executive Ken Murphy hailed last week as the ‘biggest in our history for home delivery’
The costs related to the pandemic include the safety measures installed across stores and the hiring of thousands of new members of staff.
The government introduced the relief to boost retailers at the start of lockdown.
‘We have incurred very, very significant extra cost in running the business in the year,’ said Mr Stewart. ‘It is against a backdrop of keeping people fed and supporting government initiatives against the vulnerable, that the business’s performance should be measured.’
Mr Murphy, 53, who joined the business last week, used his opening remarks to pay credit to his predecessor Dave Lewis, 55, who had run Tesco since 2014.
What is the coronavirus buisness rate holiday?
Rishi Sunak unveiled an astonishing £350billion rescue package in March to try to stave off economic disaster at the height of the coronavirus outbreak.
Among the measures introduced by the Chancellor was a 12-month freeze on business rates.
Under the freeze, businesses in the retail, hospitality and leisure sectors in will not have to pay business rates for the 2020 to 2021 tax year.
You’re eligible if your property is a:
- Shop, restaurant, café, bar or pub,
- Cinema or live music venue
- Assembly or leisure property – for example, a sports club, a gym or a spa
- Hospitality property – for example, a hotel, a guest house or self-catering accommodation
He said: ‘If we didn’t have our house in such good order we wouldn’t have been able to respond to Covid in the way we have done.’
Tesco said it has been boosted by the dramatic change in consumer behaviour since the pandemic began.
The change has led to larger, weekly shopping trips and a rapid spike in demand for online deliveries.
Positive Money, a campaign group, criticised the Tesco move. Fran Boait, its chief executive, told the Guardian: ‘There needs to be conditions to ensure that any company receiving public support in a time of crisis isn’t wasting money on paying out dividends to wealthy shareholders.’
The New Economics Foundation thinktank also slammed the supermarket, with Sarah Arnold saying: ‘For Tesco to accept this relief, and then be able to turn around and pass the benefit straight on to shareholders, shows that the system is not fit for purpose – public funds should not be captured as private profit.’
In September, Morrisons hailed the ‘renaissance of British supermarkets’ as it posted its best sales figures for 16 years.
Gearing up for a full-blown price war with rivals, chief executive Dave Potts said the supermarket had ‘played our full part’ in the coronavirus crisis.
Retail sales at Morrisons in the six months to August 2 were 11.1 per cent higher than in the same period last year as business boomed during lockdown.
But profits at the group fell 25.3 per cent to £148million as £155million of extra Covid-related costs outweighed the £93million it saved through business rates relief.
However, like Tesco, the supermarket raised its dividend.
The firm raised its interim dividend to 2.04p, handing £49million to shareholders, which it said was a sign of its ‘confidence for the future’. Shares fell 4.1 per cent.
The company also took on 46,000 staff in the first half, and will retain at least 13,000 of them on a permanent basis.
The hiring spree helped the supermarket double the number of online weekly orders to 325,000.
Potts also announced its ‘biggest ever price cuts on customer favourites’, adding it needed to ‘compete in recessionary times’.
In less good news, Sainsbury’s has announced plans to close more than 100 Local and Argos stores around the UK, as the supermarket giant halts mortgage sales, amid dipping profits.
The grocer said it expects to close up to 70 Argos stores, 15 large supermarkets, and as many as 40 Sainsbury’s Local stores.
But it will relocate 80 Argos branches into its supermarkets, and open a further 10 supermarkets and 110 Sainsbury’s Local stores.
And online customers found it near-impossible to get delivery slots from Asda, Morrisons, Ocado, Sainsbury’s and Tesco – some didn’t have free slots for up to two weeks. Pictured: Empty shelves at a Tesco in Cambridge
Meanwhile, panic buying across the UK resumed last month amid fears of a second wave of coronavirus and another lockdown with shoppers reporting queuing for 20 minutes to enter shops before similar further delays at checkouts.
And online customers found it near-impossible to get delivery slots from Asda, Morrisons, Ocado, Sainsbury’s and Tesco – some didn’t have free slots for up to two weeks.
Restrictions on items which vanished most quickly during the country’s first lockdown, such as flour and eggs, have been put in place.
However, shops have insisted that bare shelves once filled with toilet paper and pasta will be quickly restocked.
The improved outlook for supermarkets is a contrast to the devastation the pandemic has caused on the high street.
The future of the high street is ‘hanging in the balance’ after a huge number of job losses and store closures as a result of the coronavirus crisis, a union leader warned.
Paddy Lillis, general secretary of the shopworkers’ union Usdaw, said 125,000 retail jobs have been lost this year.
He added 14,000 shops have closed.
Some 695,000 payroll jobs have gone since March, and there are 2.7million people claiming benefits.
Economists warned that the fall is the tip of the iceberg as it covers a period when the government’s massive furlough scheme is in effect – with alarming predictions of mass layoffs to come when it is withdrawn completely next month.
According to the Office for National Statistics (ONS), the number of people on payrolls was down 36,000 in August from July. It is now 695,000 lower than in March.