Tesco fuel sales drag up slowing growth

Tesco has revealed a nearly 20 per cent boost in fuel sales as the Iran war sends petrol prices soaring, dragging up otherwise slowing revenue.

The FTSE 100 supermarket saw fuel sales jump by 19.5 per cent to £1.7bn in the three months to May, while total sales growth slowed to one per cent to £16.8bn.

Tesco’s share price fell by nearly three per cent on Thursday’s market open, to 443p, leaving the stock flat in the year so far.

The effective closure of the Strait of Hormuz during the Iran war has sent petrol and diesel prices soaring, reaching the highest levels since Russia’s invasion of Ukraine in 2022.

Tesco, which operates about 600 petrol stations, saw fuel sales boom at the start of this year after declining revenue from this arm of the business in recent years. 

Fuel revenue dipped by six per cent to £5.9bn in the year to February, which the supermarket attributed to lower prices.

But the boost in fuel sales so far this year drove Tesco’s total revenue, including VAT and fuel, up four per cent to £14bn in the three-month period.

Petrol prices reached their highest rate since the Iran war broke out at the end of May, at 159p per litre, while diesel prices peaked at 191p per litre in mid-April, according to the RAC.

Fuel prices have since started to fall, and the RAC has said that it hopes the re-opening of the Strait of Hormuz will soften rates further.

Tesco also said on Thursday that it saw food sales jump by 2.6 per cent in this three-month period, while fresh food sales climbed even further, by 3.6 per cent.

As Brits’ consumer confidence plummets in the face of inflation fears, Tesco said it has rolled out its Aldi price-match scheme across over 2,000 of its convenience Express stores.

“With the conflict in the Middle East creating ongoing uncertainty for many households, we remain focused on giving customers the very best combination of price, quality and service,” chief executive Ken Murphy said.

The supermarket giant said it is also expanding its upmarket Finest range, adding more than 220 products in this three-month period. 

The grocer added more than 750 new Finest products in the full year to February, as sales of the range grew by nearly 12 per cent.

Tesco said it is expanding its advertising and retail media arm, Tesco Media, with an eye to using the World Cup to “connect brands and customers”.

The supermarket saw sales slump at its wholesale business, Booker, where revenue dropped by three per cent to £2.2bn. 

The grocer said it remains mindful of the “uncertainty” caused by the conflict in the Middle East, but restated its forward-looking guidance, forecasting an operating profit of between £3bn and £3.3bn.

Richard Hunter, head of markets at Interactive Investor, said the Iran war has “shaved some strength from [Tesco’s] numbers, but growth nonetheless remains intact”.

“Tesco’s advances inevitably lead to progressively higher expectations, which in turn lessens the likelihood of positive shocks for investors, as evidenced by the tepid reaction to this update,” he added.

Tesco delivered a nine per cent jump in pre-tax profit to £2.4bn in the year to February, while revenue rose five per cent to £74m.

Murphy took a more-than £1m pay rise last year, bringing his total pay packet to £10.8m.

The supermarket has added to its dominant market share in recent months, which now stands at 28.2 per cent, more than that of its two closest competitors, Sainsbury’s and Asda, combined.