As Tesco prepares to report its half-year numbers, the company will be looking for a turnaround in its share price after a mixed 2020. The grocery giant has seen a huge rise in sales, reporting a 7.9% like-for-like increase in Q1, including an 8.7% rise in the UK. Despite this, the Tesco share price has dropped 17% since the start of the year.

Tesco share price drops amid new challenges

When Tesco reported its full-year numbers in April, there was some criticism that it was paying a dividend to shareholders while benefiting from a business rates tax cut, along with a host of other measures designed to help the hard pressed retail sector ride out the Covid-19 lockdown. This may well be a valid criticism, however Tesco, along with the rest of the supermarket sector has faced new challenges as a result of the crisis.

There has been a sharp rise in costs, of up to £840m, as the company dealt with the added risks to its staff of staying open to feed the nation. This has presented challenges not only to its supply chain, but also to its ability to meet and boost its online and physical delivery targets.

The company also spent £4m in more than doubling its delivery capacity from 600,000 to 1.3m slots per week. Tesco has also announced plans to boost its own delivery capacity with the announcement that it will be adding 16,000 new jobs due to recent changes in customer shopping habits.

Tesco share price eclipsed by rivals

While Tesco continues to account for 27% of the UK’s food shopping, it’s rival Ocado that has been making waves since the start of lockdown. Despite having only a 2% market share, the country’s increasing reliance on deliveries has seen Ocado’s share price rocket, rising 155% since March. The delivery specialist is now worth £21bn, surpassing Tesco’s £20.9bn valuation.

Ocado reported a 52% sales increase in the three months before the end of August, as online grocery shopping soared in popularity in the UK. Before the lockdown, deliveries accounted for 7% of shopping, but now sits at 12.5% as lockdowns and social distancing measures became the norm. For Tesco alone, pre-pandemic online shopping amounted to 9% of sales, a figure that has almost doubled to 16% in the space of six months.

One main advantage Tesco does have for those still shopping physically is the size of its stores, which makes social distancing easier, however its margins have continued to come under pressure from the likes of Aldi. The discounter has continued to grow in market share, while taking on new staff and implementing a click-and-collect service.

Plenty for new CEO to do

This week’s results are the start of a new era for the company under new CEO Ken Murphy, who took over from Dave Lewis at the start of October. While it’s too early to expect to hear much about his plans for the business, Murphy will have found a lengthy to-do list on his arrival, as the company looks to address the drags on profitability.

In June the company announced the sale of its loss-making Polish business for £181m, while Tesco Bank remains, with expectations of a full-year loss of up to £200m.   

Tesco released it's results at 7am on Wednesday 7 October. Find out what happened to the Tesco share price here.

 


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