Stockpiling lifts sales at Tesco, but at a cost

stockpiling Tesco store

UK supermarket brand Tesco said it saw a 30% jump in sales from stockpiling at the start of the COVID outbreak.

However, in its full year results it warned that the additional cost of keep the nation fed could top £925m.

Tesco sales amid stockpiling

Overall headline sales for the year came in flat at £56.5bn. Pre-tax profit fell to £1.31bn from £1.61bn last year.

However, retail operating profit before deductions came in 14.9% higher at £2.76bn.

Tesco began in results statement with a lengthy COVID-19 update.

It said its priority in dealing with the “exceptional challenges” of the coronavirus crisis was to ensure the safety customers, colleagues and suppliers.

“The specific challenges across the Group are three-fold, and most keenly felt in the UK”, it said.

“First, the significant change in buying behaviour of our customers.

“Second, the impact of the virus on our colleagues and thirdly, helping the more vulnerable in society, as defined by the UK Government.

Panic buying over

“In the first few weeks of the crisis, significant panic buying (c.30% uplift in the UK) cleared the supply chain of certain items.

“This has now stabilised across the Group and more normal sales volumes are being experienced.

“The size and nature of our workforce means we have experienced a significant absence of colleagues. Full colleague sickness support is in place and in the last two weeks alone, we recruited more than 45,000 colleagues in the UK.”

Dave Lewis, Tesco CEO said: “COVID-19 has shown how critical the food supply chain is to the UK. I’m very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.

“In this time of crisis we have focused on four things; food for all, safety for everyone, supporting our colleagues and supporting our communities.

“Initial panic-buying has subsided and service levels are returning to normal.

“There are significant extra costs in feeding the nation at the moment but these are partially offset by the UK business rates relief.”

Feeding the nation: Tesco saw a late surge in sales as the nation stockpiled ahead of lockdown.

Looking ahead

Tesco said in its outlook statement that COVID-19 is having a material impact on operations.

This is creating “significant additional costs”, particularly in payroll as it recruits additional colleagues to meet demand and absentee cover.

“Whilst the full financial impact of the crisis for 2020/21 is impossible to predict with a high degree of certainty, we have considered a range of scenarios to understand potential outcomes on our business and plan appropriately.”

Tesco estimated the impact on retail cost lines is between £650m and £925m. This includes significant cost increases in payroll, distribution and store expenses.

“At this stage it would not be prudent to provide financial guidance for 2020/21″ Tesco said.

However it said if customer behaviour returns to normal by August it’s likely additional cost headwinds would be offset.

Tesco shares were trading 3.9% lower on Wednesday at £2.15.