Although there has been a rise in sales during the pandemic, costs of continued trading has resulted in Tesco profits to drop sharply in a year.
The supermarket giant spent nearly £900m to ensure they carried on trading through the Covid crisis.
As the UK’s largest supermarket, Tesco claimed “exceptionally strong” revenue. Figures show it increased by 7% to £53.4bn.
The Cost of Covid
Although there was a growth in sales, pre-tax profits fell by almost 20% due to a number of Covid-related costs. This included paying employees in full if they were off work ill or shielding.
The government offered businesses a rates holiday last year in a bid to help support retail, leisure and hospitality companies during the pandemic. Many of these businesses and industries were hit hard by Covid and are now struggling.
However, supermarkets are classed as essential retailers, allowing them to remain open throughout lockdown. Tesco said it would repay the rate relief after receiving criticism over the decision to pay millions of pounds worth of dividends to its shareholders. This meant the supermarket incurred costs of £535m after giving up their business rates relief.
Despite increased sales, Tesco’s full year pre-tax profit dropped from £1bn to £825m.
Richard Hyman, a partner at the retail consultancy TPC, said that continued trading through the pandemic cost Tesco a lot of money. In order to carry on, they had to spend a lot on looking after the health of both their customers and their staff. It has been extremely costly to do this.
Online sales rose by 77%, which gave the strong sales growth a boost.
Tesco expect that some of the additional sales volumes will fall away as Covid restrictions ease. This is because people are able to physically visit stores again, and shop in other places more freely. However, the company expects a strong recovery in profitability as most of the costs incurred during the pandemic will not continue.
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