Tesco, the nation’s biggest supermarket, is feeling the pressure of the national living wage and business rates taxes. Following its accounting scandal last year, Tesco’s CEO Dave Lewis has dubbed the risk of extra costs as a “potentially lethal cocktail”.
The business’s profitability has dropped to 2% from 5% in 2010 as food prices plummet and greater competition shakes overall margins.
“Over the last five years property values have fallen and profits are down, but business rates have risen quietly but dramatically,” Dave Lewis said at CBI’s annual conference.
“Shops have closed, jobs have been lost and businesses sacrificed… it is the biggest tax that we pay and now stands at three-times the OECD average” he added.
Lewis added that business rates are currently the biggest tax paid by Tesco and these have hurt store based retail businesses to a greater extent than barely affected e-tailers In addition, the effects of the recent financial crisis has hit the supermarket chain as it means that shoppers tend to shop more frequently in smaller quantities, opting for convenience stores than a large shopping trip. Since his employment, Lewis has closed 43 stores including the retailer’s Cheshunt headquarters.
In order to tackle the issue Lewis, aptly nicknamed Drastic Dave after his turnaround strategies at consumer goods giant Unilever, is proposing that the government meet with retailers to combat business rates and alter minimum wages. If this isn’t addressed, Lewis warned that life could be made significantly more difficult.
“We have a good history of paying well, and we were supportive of the living wage when it was announced,” he said. “But my concern is that there is now pressure to increase base pay at the expense of benefits, and I don’t think that is a simple answer.
Our workforce isn’t homogenous, and staff value different things at different times in their lives. We have a menu of benefits which give colleagues choice, [including a] pension, turnaround bonus, a staff discount, a save as you earn scheme. The unintended consequences [of the living wage] have not been fully thought through.”
While Chancellor George Osbourne has minimised corporation tax, Tesco pleas the same is done to business rates.