Boris Johnson might not have many business leaders on his side. But the prime minister and Tesco boss Ken Murphy may as well be sharing a hymn sheet.
Tesco is far from whingeing, as Johnson has accused British bosses of doing about the supply chain disruption, input price inflation and worker shortages. Instead, the company has invested and increased wages. And it seems to be working.
Tesco’s half-year numbers released on Wednesday showed operating profits up 30 per cent, revenue excluding fuel rising 3 per cent and free cash flow almost double the level of a year ago. Business is better than expected. It will buy back £500m shares over the next year.
And for each issue ostensibly afflicting British business, Tesco has an answer (and not least because it has ordered 10 per cent more turkeys for Christmas than last year).
“Industry supply chains” came under pressure, Tesco said in its statement. But not ours, it implied. Cost inflation could be offset easily enough, too. Savings from simplification and productivity, with a target of £1bn over three years, would do the job. And Tesco customers have not suffered inflation in any case, according to Murphy. By price-matching discounter Aldi on more lines, Tesco customers paid less for their products in the first half of its financial year than before.
Ministers sparked a panic when they insisted there was no problem with fuel supplies. But investors believe Tesco when it says everything is hunky-dory. The company’s share price climbed 6 per cent on Wednesday.
The problem is that not everyone can do as Tesco has done. It is large. It is throwing off cash. It voluntarily repaid last year’s business rates relief. These are luxuries many other companies lack after more than a year of limited trading. And in an environment where the supply of labour is constrained, its success must come in part at the expense of others.
Tesco came through the pandemic with a fair wind from lockdown cooking and online shopping converts. Pre-tax profit of £1.3bn and operating margins of close to 5 per cent mean it can outbid competitors for low-wage employees, whether through a 2.7 per cent pay rise for shop floor and warehouse workers last month or a £1,000 signing on bonus for lorry drivers. Some new recruits may have been unemployed or come off the furlough scheme. But with immigration restricted, many will have been lured from other, smaller employers who cannot afford to compete.
It is Tesco’s scale that limits the extent of other cost pressures it has to absorb too. Suppliers’ willingness to share enough pain from commodity price rises keeps input inflation to a level that Tesco can offset with cost savings. It is hard to imagine them falling over themselves to offer such discounts were it not for Tesco’s buying power.
Comments from another retail executive underline the point. Simon Wolfson, the contemplative Next CEO, has been brainstorming policy solutions to worker shortages. But he said the effect on his business is “relatively mild”. Next will get through Christmas no problem, Wolfson said on Wednesday. Murphy similarly talks of mere “bumps in the road” in the run-up to the festive season.
Like Tesco, Next can afford to pay warehouse workers higher wages. It was a beneficiary of the online shopping surge too. Wolfson’s group last week raised its profit guidance for the fourth time this year. But other businesses have lower margins or bank balances severely depleted after the past twelve months. They cannot merely pay their way out of the supply chain crunch.
Wolfson warns of “panic and despondency” among employers in low wage industries, such as hospitality or care homes.
The prime minister is unlikely to be top of Wolfson’s Christmas list after bad-mouthing the Next boss over his suggestion to reform immigration. Still, Boris Johnson may applaud the success of businesses such as Tesco. What he cannot expect is all companies to follow suit. Tesco’s numbers show the strongest surviving and thriving. Those further down the food chain may still need some help.
cat.rutterpooley@ft.com
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzQ3NDRhNGVmLThiZGYtNDdjOS1hZDMzLWFlNzBlOGQ0NDI1OdIBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzQ3NDRhNGVmLThiZGYtNDdjOS1hZDMzLWFlNzBlOGQ0NDI1OQ?oc=5
2021-10-06 16:15:41Z
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