Five questions answered on Tesco’s profit drop

Still the Uk's biggest chain.

The UK’s biggest supermarket chain, Tesco, has announced a significant drop in profit during the first half of the year. We answer five questions on Tesco’s profit woes.

By how much has Tesco’s profit dropped by?

Today the company reported a 23.3 per cent drop in profits during the first half of its financial year. The company blamed a challenging retail environment, especially in Europe.

The firm’s pre-tax profits in the six months to 24 August were £1.39bn.

UK like-for-like sales, excluding new store openings, fell by 0.5 per cent.

Tesco is a global company, how does this profit fall reflect in different area of its business?

 The supermarket giant said profits fell 67 per cent in Europe to £55m, while Asian profits, excluding China, dropped 7.4 per cent to £314m.

However, UK trading profits rose 1.5 per cent to £1.13bn.

Group profit margins fell from 5.4 per cent to 4.9 per cent.

What has Tesco said about these latest figures?

Chief executive, Philip Clarke, speaking to the BBC said:

"There is less pessimism around, but customers are still not seeing real disposable incomes improve.

"They are, perhaps, feeling a little better about the future.”

What have the experts said?

Neil Saunders, managing director of retail consultants Conlumino, speaking to the news broadcaster said:

"…it is fair to say that Tesco is making some progress, especially on the UK front," he said.

"However, they also indicate some more worrying signs that there are a number of deep seated issues on the international scene that need to be addressed."

How are Tesco’s competitors doing?

In this fiercely competitive market Tesco is still the UK’s biggest chain. However, rival Sainsbury's reported a 2 per cent rise in like-for-like sales during the second quarter of its financial year.

While Aldi saw UK pre-tax profits surge 124 per cent to £157.9m in 2012.

Sainsbury's chief executive Justin King said Sainsbury’s was the only major supermarket chain increasing its market share.

"Our groceries online business grew by over 15 per cent in the quarter and is now worth over £1bn in annual sales." he said.

"Our convenience business grew 20 per cent year-on-year as customers topped up more frequently during the warm summer weather."

Photograph: Getty Images

Heidi Vella is a features writer for

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.