Tesco has posted bumper profits and claimed to have won market share amid the challenges posed by the rise of discounters as it faces complications on a Scottish island.

The supermarket giant has sparked controversy by proposing to have its outlet in Stornoway on Lewis open on Sundays.

It is in expansion mode after making £1.55bn profit from its retail operations in the first half up 10% from the £1.42bn generated in the same period last time.

Chief executive Ken Murphy said Tesco had reaped the rewards of the efforts it had made to cut prices and increase customer loyalty.

“We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve,” he declared.

The group underlined the importance of its Aldi Price Match scheme and the reductions offered under the Tesco Clubcard programme. Tesco claims 23 million UK households have Clubcards, which allow it to collect huge amounts of information on shopping habits.

Tesco claims it has been the cheapest full-line grocer since November 2022. It reckons price cuts and Clubcard offers made in the first half will save customers up to £385 off their annual grocery bill as they grapple with the burst of inflation that started during the recovery from the pandemic.

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However, the group has faced accusations of ‘profiteering’ and of treating suppliers unfairly.

In April the Unite trade union accused Tesco of raking in “mountains of cash” while families struggled after the group posted a £2.8bn profit for the year to February 24.

Tesco underlined yesterday how much cash it has been able to pay shareholders on the back of its success.

The group paid out £575 million in the first half under a £1bn share buyback programme that it expects to complete by April.

It has won the admiration of City analysts.

Clive Black and Darren Shirley at Shore Capital described Tesco as a high-class act operating in very competitive markets.

They noted: “We sense that Clubcard Prices are proving particularly challenging for the likes of B&M Stores.” 

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Tesco will use some of the £600m proceeds from the sale of the Tesco bank business to Barclays to fund buy backs.

Under the deal announced in February around 2,800 staff will transfer from Tesco Bank to Barclays including hundreds in Glasgow and Edinburgh.

Tesco retained its insurance, ATM, travel money and gift card operations.

It generated £94m operating profit from these in the first half, including around £40m attributable to a new five-year pet insurance agreement.

Tesco said it expects to generate around £80m to £100m annual profit from financial services.

The group said the core retail business made progress in the UK, the Republic of Ireland and Central Europe in the 26 weeks to August 24.

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UK sales grew by 4% on a like-for-like basis, ignoring changes in the number of outlets.

The group said its overall market share grew by 0.62 percentage points to 27.8% - the highest level since January 2022. It cited a particularly strong performance in large stores.

Tesco has also used its ‘Finest’ range to help it appeal to affluent shoppers.

Claiming to be “easily the most convenient”, the group said it opened 44 stores in the first half. This included 26 in the UK, 7 in the Republic of Ireland and 11 in Central Europe.

Regarding plans to open its Stornoway outlet on Sundays, Tesco said it would be listening carefully to customers and colleagues.

Highlands and Islands director Christian Davies, added: “We are confident we can carefully balance the demand for a seven-day opening while remaining respectful to local traditions and culture.”

Tesco is planning to open new stores in Pitlochry in Perthshire and Danderhall near Edinburgh.

It claims to be on track to deliver £500m efficiency savings target for the 2024/25 financial year.

Related initiatives include action to reduce stock loss, including additional security gates. Tesco is leveraging robotic automation to streamline operations.

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The group claimed to have implemented the “largest ever increase in store colleague pay,” without providing details.

Sales at the Booker wholesale operation fell by 1.9% on a like-for-like basis partly reflecting a “decline in the tobacco market”.

Group revenues increased by 4% to £31.5bn from £30.4bn.

Pre-tax profit increased by around 20%, to £1.4bn from £1.2bn.

Shares in Tesco closed up 3%, 9.1p, at 364p.