Tesco to cash in on festive hospitality shutdown

Tesco is expected to have followed rivals Sainsbury’s and Morrisons in benefiting from the hospitality sector shutdown when it reports on festive trading this week.

Britain’s biggest retailer commands a 27 per cent slice of the grocery market and is likely to report strong Christmas sales. Picture: Andrew Milligan/PA Wire

Britain’s biggest retailer commands a 27 per cent slice of the grocery market and is likely to report strong Christmas sales as it also benefits from lockdown and tiered restrictions affecting other parts of the retail sector.

The pandemic means that volumes and sales have gone up but so have coronavirus-related costs.

Ahead of Thursday’s expected trading update, Hargreaves Lansdown equity analyst Sophie Lund-Yates said: “If Morrisons’ Christmas trading statement was anything to go by, smaller gatherings at Christmas won’t have dampened sales over the key festive period.

“If Tesco follows the trend, sales of traditional festive fare will have skyrocketed. Morrisons’ sales rose 8 per cent on a like-for-like basis over the peak Christmas season, so this is what we’ll be benchmarking against.

“It will be important to look at any commentary surrounding full-year profit expectations. Huge costs associated with Covid-19 means Tesco’s half-year profits shrunk, ignoring the benefits of business rate relief.

“To protect margins, higher costs need to be offset by increased scale. So, we’ll be looking to see just how much sales rose in the third quarter, especially as November saw the re-introduction of tougher restrictions for much of the UK.”

She added: “Tesco is banking on a long-term increase in demand for online delivery slots. At the half year, online accounted for around 16 per cent of UK sales, and we wonder where that figure is now.”

Russ Mould, investment director at AJ Bell, said: “The grocery market might be about to get fiercer still, as Marks & Spencer teams up with Ocado, Morrisons cements its relationships with Amazon, Aldi starts to offer click-and-collect and delivery services and Amazon prepares to offer delivery services to its Prime service customers.

“The pandemic means that volumes and sales have gone up but so have Covid-related costs, by some £725 million at the company’s last count, so the overall benefit to profits may turn out to be limited. In addition, Tesco noted back in December that it would repay £585m in business rates relief.”

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