The four things in the new Tesco chief’s in-tray

Dividend payments 

Lewis came in for particular ire after handing out a £635m dividend in April while also benefiting from a business rates tax break granted to all retailers. Murphy is more likely than not to offer an interim dividend, City analysts think. 

“The group has not furloughed anyone or participated in state financing or early repayment programmes,” says Clive Black at Shore Capital. 

Tesco and its rivals have also faced additional cost and disruption since the coronavirus hit, offsetting the gains from business rates. That makes a backlash less likely. 

Tesco Bank 

City pundits have been urging Tesco to offload the loss-making bank to a lender. However, that could be difficult given its mortgage book was bought by Lloyds last year for £3.8bn.

The bank is poised to return to profitability and it retains some value – it has more than 5m customers – but do not expect a bidding war. Rival Sainsbury’s has yet to find a buyer for its mortgage book. 

Price war 

Tesco, and most notably Morrisons, have sharpened their focus on price since the pandemic hit, particularly against discounters Aldi and Lidl.

Murphy must tread carefully to prevent a fallout with suppliers if further cuts are on the cards.

When Lewis took over, those relationships were extremely fraught and difficult to rebuild. It does not bode well that the outgoing boss ruffled feathers over the summer when Tesco demanded some discounts from suppliers. 

It is also worth noting that despite the major grocers’ efforts to narrow the price gap, Aldi’s UK boss still believes that “more expensive supermarkets can only imitate, not replicate, what we do”.

This week Giles Hurley called campaigns such as Tesco’s price match “marketing tricks and gimmicks”. 

Known unknowns

The grocery game – especially in the hyper-competitive British market – has notoriously thin margins and a threat coming out of leftfield could easily upset the apple cart.

Some of these could include:

  • the new Marks & Spencer tie-up with Ocado taking off in a big way
  • Asda finding a new lease of life under the expected winners of the Walmart sale process, TDR Capital and petrol forecourt kings the Issa brothers 
  • Amazon finally making its long-expected move on the UK grocery market by buying an established player such as Morrisons – or even Sainsbury’s 

 

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