Tesco sales soar despite a fall in profits

Tesco has experienced a 7% rise in sales for this year, netting the supermarket giant an extra £53.4 billion in revenue.

The increase in sales of 7% was due to Tesco experiencing a large rise in online sales of 77%, helping the firm retain revenue and cash-flow streams during the pandemic.

Tesco’s large presence within the supermarket industry has enabled them to construct the infrastructure necessary for them to be able to handle large orders of online shopping.

Although this infrastructure was likely not at first intended to deal with a pandemic of this kind, it did help those who were elderly or other disadvantaged individuals to receive their weekly shopping.

However, the COVID-19 Pandemic, which forced millions to stay at home due to lockdown restrictions, has caused many shoppers to change their habits, having them opt for online shopping methods instead.

Because of this, Tesco has been a big winner during the pandemic when it comes to sales as they have already had the infrastructure necessary to meet the demand for online shopping.

However, because of these changing consumer habits, smaller stores that do not have the infrastructure necessary to compete with the likes of Tesco and other supermarket giants, have likely experienced large losses during the pandemic as they cannot satisfy the demands of consumers.

Despite the 7% increase in sales which Tesco experienced, the firm still saw a loss in profit of 17.5% this year.

The loss in profit has caused Tesco’s full-year profit to decrease from £1 billion to £825 million.

This loss of £175 million is made significant once it is known that Tesco’s profits in the previous year rose by £193 million.

The firm stated that the loss is largely attributed to paying workers sick-pay and shielding from COVID during the pandemic.

The number of workers who have had to be compensated for sick pay during the pandemic has likely increased dramatically due to COVID-19.

So, because Tesco has experienced a reduction in the quantity of its labour, the supermarkets giant output has decreased.

In other words, each workers output has reduced over the board, and, because these sick workers still have to be paid, Tesco’s variable costs have effectively increased.

This combined with the added costs of public health measures that the firm has embarked upon to reduce the spread of COVID has consequently increased the supermarkets costs all over the board.

Because of this, Tesco’s profits have been squashed tighter and tighter, eventually turning into a loss during the pandemic.

However, this is likely a temporary loss for the firm as once the pandemic and lockdown restrictions are over, Tesco will likely be operating at normal output levels.

Despite this, the firms share price decreased by 2.65%, and, to prevent a further crash in share price, the supermarket giant announced that it will further incentivise investors by paying larger dividends, ones that are in the millions to be exact.


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Research compiled by Jonas Theaker.

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