Tesco H1 2026 Earnings Report

Tesco EPS Results

• Actual EPS: GBX 15.61
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Tesco Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Tesco Announcement Details

• Quarter: H1 2026
• Date: 10/2/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, October 2, 2025
• Conference Call Time: 4:00AM ET

Tesco (LON:TSCO) was built to be a champion for customers, serving them every day with affordable, healthy and sustainable food. Our commitment to our customers extends beyond our stores, and into every community we serve – in the UK, Republic of Ireland, Slovakia, the Czech Republic and Hungary. We invest in communities to help them thrive, through supporting schools and children’s groups, food banks and other good causes. In challenging times, our purpose has guided every part of the Group. Serving our customers, communities and planet a little better every day is what we do.

Tesco H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Group sales grew 5.1% and adjusted operating profit rose 1.6%, with H1 free cash flow of £1.3 billion.
• Positive Sentiment: Customer metrics strengthened with brand perception ahead of competitors, Net Promoter Score at a six-year high, and UK market share topping 28% amid continued share gains.
• Positive Sentiment: The Save to Invest programme is on track to deliver £500 million of savings this year, funding sustained investment in price, quality, and service.
• Positive Sentiment: Full-year adjusted operating profit guidance has been raised to £2.9–3.1 billion, with free cash flow forecast maintained at £1.4–1.8 billion.
• Negative Sentiment: Competitive intensity remains at record levels and cost headwinds—such as higher taxes and operating inflation—pose challenges for the second half.

Presentation

[Ken Murphy, Group CEO at Tesco]

Good morning, everyone, and welcome. I'm in Welland with Imran to share an update on our performance over the first half of the year, as well as the progress we are making to unlock our longer-term growth opportunities. I'm pleased with the progress we've made across the half. Our strong momentum is once again down to the brilliant work our colleagues do, day in, day out, to put our customers first. I'd like to start today by saying a huge thank you to all of them. In the face of increased competitive intensity and additional taxes, we took decisive action to further invest in delivering the best possible value, quality, and service. Our actions have resonated with customers, satisfaction has increased, and consequentially, we have continued to grow market share. In fact, even more share than we anticipated.

[Ken Murphy, Group CEO at Tesco]

Alongside strengthening our competitive position, we have continued to invest in both our core business and long-term growth opportunities, enabled by our Save to Invest program. The strong response from customers to the improvements in our offer is reflected in our financial performance, which Imran will take us through in more detail shortly. To summarize, our group sales grew 5.1%, with growth in all operating segments, and our adjusted operating profit increased by 1.6%. Though we are pleased with our performance so far, we remain focused on delivering the best possible value for our customers as they start to get ready for Christmas. Building customer trust and satisfaction is at the very heart of everything we do. Our overall brand perception score has increased year on year and remains well ahead of the competitor average. We outperform peers across the board with continued gains in satisfaction, value, and quality.

[Ken Murphy, Group CEO at Tesco]

Our Net Promoter score has also moved forward during the half and is now at its highest level in six years. Our ongoing investment in value, quality, and service continues to resonate with customers. In the UK, we have grown volume and have consistently seen market share gains for over two years, with our share now over 28%. Meanwhile, in Ireland, we have consolidated three years of strong gains. Household budgets remain tight, and we understand how important value remains to customers. We've continued to invest in price, improving our position relative to the rest of the market, with a particular focus on the products that matter most to customers. Through a combination of Aldi Price Match, Low Everyday Prices, and Clubcard Prices, our value proposition remains unrivaled, and we have seen switching gains from the majority of our key competitors.

[Ken Murphy, Group CEO at Tesco]

Ensuring customers get the best possible value by shopping at Tesco isn't just about price, and we are passionate about raising the bar in quality and product innovation across our ranges. This half, we launched more than 470 new products in the UK, with 200 of those being in Finest. Highlights include an improved Finest barbecue range and delicious new launches like Iced Coffee Concentrate and Finest Gelato. As the price of dining out continues to rise faster than the price of dining in, customers are increasingly turning to our Finest ranges to treat themselves. Now, in their third year of double-digit growth, Finest sales have grown over 16% year on year. While Finest has again been a standout performer, we continue to broaden and deepen our quality offering across all tiers, including relaunching our Meal Deals Sushi range and improving welfare standards on our core Fresh Chicken ranges.

[Ken Murphy, Group CEO at Tesco]

Our commitment to providing great quality for all customers is being recognized externally too, and in June, we were awarded Retailer of the Year at the Freeform Food Awards. Clubcard allows us to understand our customers even better, and the insights it provides help power our business. Clubcard engagement is growing, with penetration around 85% across the group. As we continue to celebrate 30 years of Clubcard, we have been sharing new and exciting rewards with customers, including cinema tickets for £2.50 in Clubcard vouchers with Cineworld and £10 off with a range of days-out partners. Customers can now earn Clubcard points when they charge their cars too. Our new partnership with Pod awards points for charging and more than 2,500 EV points across our estate. Our colleagues are central to everything we do, and the service they provide shapes the experience customers have.

[Ken Murphy, Group CEO at Tesco]

In March, we announced an above-inflation pay increase of 5.2% for our colleagues in stores. This latest investment, the equivalent of £180 million, builds on significant investment in pay and benefits we've made in recent years. I'm proud to say that more than 64,000 colleagues, mainly those working in stores and distribution centers, are currently participating in our Save as You Earn share schemes. Colleague safety and well-being is our top priority, and all our UK colleagues now have free access to a personal safety app that can track their journeys and help them raise the alarm if they don't feel safe. This is part of a much broader offer, which includes a virtual GP service accessed by many of our colleagues and their families.

[Ken Murphy, Group CEO at Tesco]

It's important that everyone feels welcome and can thrive at Tesco, and I'm proud that we have been listed as one of The Times Top 50 Employers for Gender Equality for the fifth consecutive year. We're committed to delivering for all of our stakeholders, and throughout the half, we've taken further steps to support our communities, the environment, and our suppliers. Our Fruit and Veg for Schools initiative has already provided more than 10.8 million portions of fruit and veg, and this year, we've extended the scheme to even more schools. We introduced fruit and veg planters made from recycled soft plastics too, so that pupils can try their hand at growing their own produce. We also launched our new campaign to help the nation get more of its Five a Day.

[Ken Murphy, Group CEO at Tesco]

Across stores and online, we've incentivized healthy choices through Clubcard challenges on fruit and veg, with recipe inspiration too. We're working hard to make the food system more sustainable and making good progress on our Planet Plan. Supporting our commitment to procure more electricity through our power purchase agreements, we've agreed a new deal with EDF for Hare Craig Wind Farm in Scotland, which will start generating renewable electricity in 2028. Strong partnerships with our suppliers are fundamental to our supply chain, and to our ability to serve customers and communities. To help farmers achieve our shared goals, we have rolled out an additional sustainability-linked incentive for more than 400 farmers in our Sustainable Farming Groups. As the biggest customer of British agriculture, we believe we can play a key role in supporting the long-term economic and environmental sustainability of UK farming.

[Ken Murphy, Group CEO at Tesco]

We started the year facing even greater uncertainty than normal, but we were confident that by putting customers first, we could deliver for all of our stakeholders. We're pleased with the customer response to our decisive action, and this, combined with strong cost control and the benefit of good weather, has allowed us to upgrade our guidance for the year. Imran will now cover this as part of his financial review before I return to update you on our strategic progress. Over to you, Imran.

[Imran Nawaz, CFO at Tesco]

Thank you, Ken, and good morning, everyone. I'm pleased with our performance across the half. As Ken highlighted, we saw a better-than-expected response to the investments we made to our customer offer. This translated into strong sales growth, operating profit growth, and continued cash generation. Group sales grew by 5.1% at constant exchange rates. This included a 4.3% increase in like-for-like sales, with continued volume growth. Group adjusted operating profit increased by 1.6%, with growth in sales volumes, alongside progress in our Save to Invest program, offsetting operating cost inflation and investments across value, quality, and service. Our cash delivery was strong, with £1.3 billion of free cash flow in the half. Net debt was £9.88 billion at the end of the half, an increase of £430 million versus year-end.

[Imran Nawaz, CFO at Tesco]

As a reminder, the year-end figure included around £700 million of proceeds from the sale of our banking operations, which we started to return during this period. Around half of these proceeds have now been returned as part of our total £1.45 billion buyback program this year. Headline earnings per share increased 6.8% year on year to 15.43 pence. We have proposed an interim dividend of 4.8 pence per ordinary share. This is in line with our policy of setting the interim dividend at 35% of the prior year total dividend. As you will have seen in our release this morning, following changes to our Group Executive Committee during this period, Booker is now reported as a separate operating segment. Following its disposal last year, our banking business continues to be presented as a discontinued operation. My review this morning is on a continuing basis.

[Imran Nawaz, CFO at Tesco]

Group sales for the half were £33.1 billion. Our UK and Ireland segment delivered total sales growth of 5.6%, continuing its strong momentum. Booker total sales increased by 2.4%, with strong performances in core retail and catering, offsetting the continued decline in the tobacco market. In Central Europe, sales grew by 5%, with growth across all our countries amid regulatory and competitive pressures. Group adjusted operating profit increased 1.6%, driven primarily by strong trading performances in the UK and Ireland. Over the next few slides, I will cover the performance of each market in more detail, starting with sales before moving on to profit. In the UK, we delivered total sales growth of 5.6%, including like-for-like sales growth of 4.9%, with continued market share gains. Food like-for-like sales grew by 5.7%, with volume growth supported by ongoing investments in our customer offer, as well as the benefit of good weather.

[Imran Nawaz, CFO at Tesco]

We saw strong growth across many categories, but Finest was once again a standout, with sales up 16%. Our clothing sales were also particularly strong, up 7.8%, driven by the performance of our new ranges, which really resonated with customers as they enjoyed a great summer. We grew sales and outperformed the market in all UK channels. Our large store like-for-like sales grew by 4.5%, supported by continuing investments in price and service, as well as our market-leading availability. Convenience like-for-like sales, which include both Tesco Express and One Stop, grew 1.4%. Within this, the performance of our Express stores has been particularly good, with over 70 basis points of market share gains. Our UK online sales grew by 11.4%, mainly driven by volume growth. We saw market share gains of 112 basis points, with share now at 36.9%. We increased our online capacity, adding over 70,000 weekly delivery slots.

[Imran Nawaz, CFO at Tesco]

The number of Delivery Saver subscriptions also increased, growing to 788,000. We extended the rollout of Whoosh, our rapid delivery service, with UK household coverage now at over 70%. With increases in both active customers and basket size, Whoosh delivered a 2% contribution to total online growth. Leveraging our existing asset base, Whoosh has now become an important part of our mission to serve customers wherever, whenever, and however they want to be served. In Ireland, like-for-like sales grew by 4.8%, with volume growth supported by the continued rollout of our store renewal program. Total sales were up 6.5%, with a 1.3% contribution from new stores. Food sales grew by 5.1% as we continued to invest in product quality and innovation. Fresh sales were up 6.3%, and sales of our Finest ranges grew by 13%.

[Imran Nawaz, CFO at Tesco]

Non-food sales were down 1.8%, which includes a 3.8% impact from the transition to a commission model for toys with The Entertainer. Excluding this impact of toys, non-food sales were up 2%. Booker like-for-like sales increased by 1.7%, with strong growth in core retail and catering, offsetting continued tobacco decline. Our core retail like-for-like sales grew by 4.1%, with particularly strong growth in our Premier symbol brand. In total, Booker added 275 net new retail partners in the half. Core catering saw like-for-like sales growth of 5.7%, with volume growth supported by a weather benefit. We continued to invest in price competitiveness and saw a further increase in customer satisfaction. Best Foods Logistics' like-for-like sales grew 1.3%, despite ongoing weakness in parts of the fast food market it serves. In Central Europe, like-for-like sales grew by 3.4%, with growth in all countries despite competitive and economic pressures.

[Imran Nawaz, CFO at Tesco]

Food like-for-like sales grew by 4%, with Fresh Food up 7%. Our ongoing targeted price investments enabled us to remain competitive and contributed to an increase in our Net Promoter score. Non-food like-for-like was down 0.8%, with volumes challenged by subdued consumer confidence. We saw growth in all channels in the region, with particularly good performance in our convenience and online channels. I'll now move to our profit performance. Group adjusted operating profit was £1.67 billion, which represents a 1.6% increase on last year at constant rates. Our group adjusted operating margin was 4.6%, slightly lower than last year. Within this, UK and Ireland adjusted operating profits grew by 2.1% to £1.47 billion.

[Imran Nawaz, CFO at Tesco]

We delivered a strong trading performance, which combined with continued delivery of our Save to Invest program, more than offset investments in our customer offer and the ongoing cost inflation, which includes the increased national insurance contributions and the new EPR levy recognized in the half. The UK and Ireland segment also includes operating profit from our insurance and money services business, which increased by £6 million to £100 million. Booker reported adjusted operating profit of £162 million, growing 0.6% year on year. A good weather tailwind and cost efficiencies from our Save to Invest program helped mitigate significant industry-wide operating cost pressures, including the EPR levy. I am pleased with the contribution Booker makes to the group and see further opportunity for growth in the years to come. Central Europe adjusted operating profit was £44 million, down £5 million.

[Imran Nawaz, CFO at Tesco]

This reflects targeted price investments to counter competitive pressures, together with lower rental income following the sale of some of our shopping malls last year. This slide details the two main reasons for the £72 million reduction in statutory profit. First, we have higher adjusting items of £71 million versus £37 million last year. This includes £20 million restructuring and property costs and £13 million of bank separation costs, in addition to the ongoing amortization of acquired intangibles, mainly related to the Booker merger. Second, net finance costs are higher. This is mainly due to the movement in fair value remeasurements of financial instruments as a result of the decrease in long-term inflation expectations. Moving now to our cash flow, which remains strong. We delivered £1.3 billion of free cash flow, with cash generated from operations increasing £283 million year on year.

[Imran Nawaz, CFO at Tesco]

While we normally see a working capital inflow in the first half, at £408 million, we saw a higher inflow than last year, reflecting the strong trading performance in the half. Our cash CapEx was £0.7 billion in the half versus £0.6 billion in the prior year, reflecting a more even shape to this year's investments. Tax paid was £50 million higher, reflecting the end of historical tax deductions and phasing of tax payments. Dividends received increased £50 million versus the prior year, reflecting income received from IMS. Let's now turn to the balance sheet, which also remains strong. Net debt was £9.88 billion, an increase of £430 million from the year-end. The year-end balance included £700 million of disposal proceeds related to the sale of our banking operations, and we have since returned around half of this.

[Imran Nawaz, CFO at Tesco]

Together with the payment of our full-year dividend and ongoing capital return, this additional buyback more than offset the benefit of our very strong free cash flow. Our net debt EBITDA ratio was unchanged from the year-end at 2x, partially benefiting from the disposal proceeds we will have returned by year-end. Our fixed charge cover was 4.3x at the end of the half, compared to 4.2x at year-end. During the half, and alongside the scheme's trustees, we agreed the triennial funding valuation for our principal defined benefit pension scheme. On a technical provisions basis, the funding position of the scheme remains in surplus, and it was therefore agreed with the trustees that no pension contributions would be required from the group. We continue to invest in our business, with capital expenditure of £667 million in the first half.

[Imran Nawaz, CFO at Tesco]

We are prioritizing investment in high-returning areas, such as automation and the development of our digital platforms. In the summer, we opened the semi-automated Fresh Food Distribution Center in Aylesford, and we have continued to deliver wider automation initiatives across the group. This represents ongoing investment to ensure we are fighting fit for the future. We're also investing in our core estate, which in the half included 112 store refreshes. We expect total CapEx this year of around £1.5 billion. In April, we provided guidance, which allowed us to take decisive action and invest in every aspect of our shopping trip, following an increase in the competitive intensity in the UK. Competitive intensity remains elevated, and we are committed to doing everything we can to deliver great value, great quality, and great service for our customers.

[Imran Nawaz, CFO at Tesco]

However, a better-than-expected customer response to our actions, strong cost control, and the benefit of good weather have helped mitigate the impact of our investments in the first half. We now expect full-year 2025/2026 Group adjusted operating profit of between £2.9 and £3.1 billion, an increase from the previous range of between £2.7 and £3 billion. We continue to expect free cash flow within our medium-term range of £1.4 billion to £1.8 billion. Before handing back to Ken to talk us through the strategic progress, I wanted to take a moment to reflect on our longer-term momentum. We set our multi-year framework in 2021, and it continues to guide our approach to creating sustainable, long-term value for every Tesco stakeholder. Delivery against our framework has been strong, and I'm pleased with our progress over the past four and a half years.

[Imran Nawaz, CFO at Tesco]

Our customer-focused and disciplined approach has delivered free cash flow ahead of our expectations. We have continued to invest in our business and make strong progress on our long-term opportunities. We entered the second half with strong momentum, which is built on our long-term commitment to investing in our customer offer. This has been reflected in our consistent delivery against our multi-year performance framework and strong, consistent earnings growth and cash generation. I will now hand back to Ken to talk us through our strategic progress.

[Ken Murphy, Group CEO at Tesco]

Thank you, Imran. Our strategic priorities continue to guide our approach to differentiating ourselves in a very competitive landscape. Each week, customers benefit from exceptional value through Aldi Price Match, Low Everyday Prices, and of course, Clubcard Prices. This winning proposition has supported an improvement in our price position against the market. At the same time, we're driving innovation and enhancing our product ranges. These improvements are being recognized by customers, with our quality perception making significant gains over the last five years. The strength of our Save to Invest program, on track to deliver £500 million of savings this year, underpins our ability to invest, innovate, and mitigate the effects of inflation. We have continued to improve and expand our store estate, opening 38 new stores and refreshing 112. As demand and our store estate grow, we're committed to ensuring our distribution network remains fit for the future.

[Ken Murphy, Group CEO at Tesco]

In the first half, we opened a new semi-automated Fresh Food Distribution Center in Aylesford, and in July, we also announced a major investment into a new site at DP World London Gateway, which we expect to open in 2029. Online performance remains strong, and we have seen further growth in market share and customer satisfaction. We've increased our capacity, adding vans and more delivery slots for customers to choose from. Tesco Whoosh, our rapid delivery service, continues to grow at a double-digit rate. Orders are up nearly 50% year on year, with an increased number of active customers. Whoosh is now in over 1,600 stores across the UK, and we've also launched in Ireland during the half. The recent launch of F&F Online means more customers can access a much fuller range of clothing. Early performance has been encouraging, with over 3 million site visits per month so far.

[Ken Murphy, Group CEO at Tesco]

We are introducing the platform in planned stages, learning and adapting as we go to ensure we offer the best possible online experience. Meanwhile, with over 600,000 products now available, Tesco Marketplace further enhances our online product offer. Every one of our customers is different, and we're investing in our digital capabilities to engage with them in a more relevant way. We have partnered with Adobe to build our capability and help power our one-to-one interactions with customers. In the early stages, this includes close-to-real-time personalized emails with offers and recipe inspiration based on their preferences and shopping habits. As we build our capability, customers can hope to see a lot more. We have also sent tailored digital coupons to over 10 million customers and further enhanced our Clubcard challenges, which are now in their 10th round.

[Ken Murphy, Group CEO at Tesco]

In addition to increasingly personalizing our core offer, we are looking to meet even more customer needs, wherever, whenever, and however they want to be served. In partnership with Aviva, we launched Tesco Life Insurance, offering customers cover at Clubcard Prices with great rewards included. Customers can also access complimentary health and well-being services with the Aviva DigiCare app. Tesco Mobile is one of the UK's most trusted mobile networks and was voted U-Switch Best Mobile Network for Customer Service for the fourth year running. Our mobile customers benefit from exclusive Clubcard offers and no roaming fees for our 48 home-from-home destinations. In addition, F&F Home launched last year and continues to go from strength to strength. Designed by our in-house team, our expanded home range offers timeless designs at great prices.

[Ken Murphy, Group CEO at Tesco]

Retail media is an exciting growth opportunity for us, and we've extended our reach across channels and suppliers in the first half. We were delighted to win Retail Media Network of the Year at the Retail Media X Awards in May and to have been shortlisted for eight of the upcoming Media Week Awards. We've enhanced our Tesco Media and Insights offer, adding new features so suppliers and agencies can better manage their campaigns through our Sphere platform. Our mix of suppliers has expanded too, and by building tailored products to suit brands of all sizes, we have seen significant growth in small brand advertising. Over 550 new media screens were rolled out across our express convenience stores, and we've expanded our product offering, including launching video advertising on the Tesco app. Across our stores, distribution centers, and offices, Tesco has been using machine learning for well over a decade.

[Ken Murphy, Group CEO at Tesco]

As technology improves, we are evolving how we use data and artificial intelligence. By leveraging these tools, we are generating deeper customer insights and driving innovation and operational efficiencies. This is enabling us to unlock future growth opportunities while optimizing our operations. For instance, we are utilizing data analytics within our retail media campaigns. Our Tesco Media team has developed Smart Stock, which can anticipate when customers are running low on household products. This allows us to send timely, personalized reminders, helping both customers and suppliers, and setting a new benchmark for precision-led retail media. In addition, we can understand our customers better using our AI-powered range curation tool. The tool enables us to better tailor store offerings based on the shopping habits of local customers, ensuring more customers can find what they want when they want it.

[Ken Murphy, Group CEO at Tesco]

Moving to operational efficiencies, our fleet is one of the largest in the country, transporting everyday essentials to stores and homes every minute. Routing software isn't new, but new AI-powered tools developed in-house are allowing us to optimize the combination of products, baskets, and routes for every Tesco lorry and delivery van. In a business as large as ours, small changes can have a big effect, and these new tools have allowed us to remove around 100,000 miles per week. To recap, we've started the year well, customers are responding to our investments, and market share gains have been strong, which has been reflected in our financial performance. We remain determined to offer customers the best possible value while continuing to innovate. I'm pleased with the progress we've made on our longer-term growth opportunities to set ourselves up for future success.

[Ken Murphy, Group CEO at Tesco]

As we head into the second half, competition remains intense, and we are as focused as ever on delivering for all of our stakeholders. Thank you for your time. Imran and I would now be very happy to take your questions.

[Operator]

Thank you very much, Ken. Any analysts who would like to ask a question should join the queue by clicking "Raise Hand" in the bar at the bottom of the screen. Please ensure that you unmute your microphone only when you're introduced. If you no longer wish to ask a question, you can indicate that by clicking the "Lower Hand" button also in the bar at the bottom of the screen. We'll now take our first question from Freddie Wild at Jefferies. Freddie, if you can unmute yourself and ask your question.

[Freddie Wild, VP at Jefferies Equity Research at Jefferies]

Good morning, Ken and Imran. Thank you for taking my questions. Three, if I may. Firstly, could you help us understand the current competitive environment out there, both how it's currently changing and how you see it continuing for the rest of the year? Second, Ken, I would love to get your thoughts as ever on consumer health and how you see the consumer spending environment at the moment. I suppose the combination of those two questions is, can you help us understand what goes into both the top and the bottom end of your guidance and what we would need to see to reach both that top and bottom end? Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks a million, Freddie. I'll take the first two, and then I'll hand to Imran to cover the third. I think I would start by saying that the competitive environment in the UK retail sector is probably the most intense in the world, particularly in grocery. I think that at the start of this financial year, we saw that step up a notch. In both directions, actually, we saw an increase in pricing intensity, and we also saw an increase in cost pressures coming through the P&L of the industry, and that created a lot of pressure in the system. What I'm delighted about is the response that the Tesco team put in place really decisively and really quickly to address that. First of all, we invested very heavily in price, and secondly, we accelerated our Save to Invest program.

[Ken Murphy, Group CEO at Tesco]

The third thing we did, of course, is we didn't take our eye off the other aspects of the offer. We have invested equally heavily in our quality, our new product innovation, as evidenced by the 470 new products we launched during the half, and in availability, making sure we were best in class in terms of product availability and expanding our digital footprint through our online shopping channels, both GHS and QuickCommerce Whoosh. I think it was a combination of all those factors, Freddie, that's allowed us to win in the half. I would say to you that the market has definitely stepped up in terms of intensity. We see that continuing into the second half, so we don't see any relaxation, if you like, or moderation in the competitive environment.

[Ken Murphy, Group CEO at Tesco]

Clearly, the forthcoming budget will tell a lot in terms of whether the cost pressures will ramp up yet another notch, but time will tell. What I'm really pleased about is our ability to respond to the environment and win with customers. Moving on to that, the customer sentiment and how they're feeling, I think the best way to describe it is mixed. I think that the shopping habits they've built in over the last three or four years following the initial cost of living crisis have stuck, and in some ways, some of them are being accentuated. You are seeing an increase in fresh food purchases, which I think is a good thing for the health of the nation, but also an indication of a trend of more scratch cooking and more cooking from first principles.

[Ken Murphy, Group CEO at Tesco]

We're also seeing, though, a trend of more dining in in weekend and evening occasions, as evidenced by the strong growth in Finest of over 16%, which is now lapping three years of consecutive strong double-digit growth. As I look forward, I think the consumer is concerned. I think it's concerned about the job market, it's concerned about inflation, it's concerned about the upcoming budget. We've prepared really well from a Christmas perspective, both in terms of our price investment, our product quality, and innovation around the Christmas period, and in terms of our operational standards. I'll hand over to Imran now to talk guidance.

[Operator]

Hi, Freddie. When we set out the guidance at the beginning of the year, we were very clear that we wanted to have what we called flexibility and firepower to react so that we can continue to invest not just in price, but in quality and service to keep winning. The truth is we made those investments, and the truth also is those investments really worked, and honestly, they worked better than we thought they would. That is kind of why we're able to upgrade today to the £2.9 billion and £3.1 billion range, which feels good. As Ken just mentioned, we're going into a second half, which we're not going to have the weather tailwind, I think fair to say, and we'll have to make sure we continue to invest to keep winning.

[Operator]

With the new budget and the uncertainty that's out there, we want to make sure that we have that flex and firepower, and there's a lot to play for, especially as Christmas comes. I feel good going into the second half with the momentum we have, and we'll keep you posted in terms of how it all played out, but from a position of strength, I would say.

[Freddie Wild, VP at Jefferies Equity Research at Jefferies]

That's super helpful. Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks, Freddie.

[Operator]

Thanks, Freddie. We'll now take our next question, and that'll come from Monique Pollard at Citi. Monique, please go ahead and ask your question.

[Monique Pollard, Director of Equity Research at Citi]

Hi, morning, Ken and Imran. Thank you for taking my questions. The first one was just on food inflation. The latest canned target for the four weeks to the start of September was 4.9%. Just wondering if you can give a view on where you think you stand versus that industry food inflation number. The second question was just on that cash flow benefit from the dividend from IMS in relation to the prior year. That £50 million that you got in the first half, just wondering if we should expect another inflow from there in the second half or whether that's the £50 million for the year and done. The final question I had was just around your online business. As you said, you've made sort of quite a few investments and started a few things up since the start of the year.

[Monique Pollard, Director of Equity Research at Citi]

The launch of F&F Online, there's been a ramp-up in the number of products on the marketplace. You're seeing this very strong online market share growth. Just wondering whether you can give us any stats on whether there's been more time generally on site, higher conversion, anything you can give us to help us with how some of these investments are driving that online engagement. Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks a million, Monique. First up, things first, and then I'll hand over to Imran to talk on dividends. On food inflation, we can't give you a specific number. What we can tell you is we've been inflating meaningfully behind the market. I think that is a consequence of the price investments we've made. Over the six months, we've actually increased the gap between us and the market in terms of price competitiveness. The second thing, of course, is the strength of our Save to Invest program and the fact that we've dialed that up even more, and that's helped to manage and fund that investment so we've been able to deliver a strong bottom line at the half year. Imran, on the dividend question?

[Imran Nawaz, CFO at Tesco]

Yeah, sure. I mean, also just maybe one thing on the growth profile on the inflation, given the fact that our inflation was significantly below the market, it also gives you an indication that we had strong volume and mix benefits in the half, which is a great testament to the returns we're seeing. On the cash flow, yes, you're right. IMS had a fantastic half, and clearly we will continue wanting to expect to see an annual dividend from them. This is a catch-up from last year. I would expect that to be once a year. At this stage, I would bank in just the £50 million that we received, and then annually, whenever we finish the next year, get the next one the year after.

[Ken Murphy, Group CEO at Tesco]

On the online business, I'll give you a few points, and then maybe also Imran will jump in with a few of his thoughts on the online business. I think I'd start off by saying that we do see it as a system rather than as any one specific offering. We are trying to develop a world where we are able to offer customers what they want, when they want, whenever they want it. Therefore, there is a logic that is broader than just a single proposition of GHS, Whoosh, F&F Online, Marketplace. They're all part, in our view, of a broader plan to be able to cater to customer needs as they evolve and develop, be able to fulfill those needs in a really efficient, convenient, and good value way, and then to reward customers through the Clubcard for shopping more with us.

[Ken Murphy, Group CEO at Tesco]

That's kind of been a part of our strategy now for some years. What you're seeing is evidence of us progressively building that out. Different parts of the proposition are evolving at different speeds. You know, Whoosh, we launched three, four years ago for a handful of millions, initially very modest growth. Post-COVID, we thought there was a massive, if you like, exodus out of the QuickCommerce market. In the last six months, we've seen 60% growth in Whoosh. It's now a really meaningful business, and it is a business that is profitable and contributing. We see great growth potential in that. Similarly, we know that for F&F Online, 80% of clothing missions start with an online search, even if they end up physically in store shopping. When you look at the F&F business, you need to look at it holistically.

[Ken Murphy, Group CEO at Tesco]

We've had a very strong performance over the six months on both clothing and home for F&F. We think the online presence has been a contributor to that, even though it's still in the early stages of ramping up. I think that, you know, and similarly, Marketplace, yes, we've added a lot of vendors. It's a slower burn Marketplace, but it is something that we believe in for the future. Imran, any?

[Imran Nawaz, CFO at Tesco]

Yeah, just a few thoughts. You know, just to build on Ken's comments there, I mean, if you think about the market share that we have in online, it's close to 37%, 36.9%. We gained in the last read 112 basis points. I mean, that's pretty, that's good. I'm happy about that, I have to say. When you think about Whoosh's 60% growth, and then when you look at clothing, just within total clothing in the half, growing close to 8%. Those are really strong set of numbers. I think the platform it gives us and the experimentations we're doing and the drive on top of that, leveraging the personalization capabilities we have, it's a real well-performing asset, I have to say. Profitability is really good, as Ken said, because of the way we're leveraging it.

[Monique Pollard, Director of Equity Research at Citi]

Excellent. Thank you, very clear.

[Operator]

Thanks, Monique. We'll now take our next question from Clive Black at Shore Capital. Clive, please go ahead.

[Clive Black, Director at Shore Capital]

Yeah, thank you. Congratulations on your results. I'm just going to ask one question for a change, which I think would be a good trend, to be honest. Could you give us an indication of your capital allocation plans with a share re-rating? At what point does a share buyback to you feel destructive to value? What would you think about if a share buyback wasn't on the cards if you were still generating such cash? Thank you. Very well done. Not easy to do what you've done.

[Imran Nawaz, CFO at Tesco]

Thanks, Clive. So look, I mean, just, you know, as a principal, Clive, as you know well, we always evaluate returns on any cash out the door, whether that's CapEx or whether it's dividends or whether it's buybacks, right? In general, we see the buyback mechanism as a very efficient means to return the surplus cash. If you look over the last, what is it now, since October 2021, we returned around £3.7 billion. We reduced the number of shares outstanding by 15%. Over that period, profits have risen in a nice way as well. You can imagine the value that's been created has been fantastic. Having said all of that, we always continue to make sure we evaluate the returns on those metrics and make that on an annual basis together with our board. So far, I feel very good about the value that's been created.

[Clive Black, Director at Shore Capital]

Are we getting close to the point that you have to think about something different?

[Imran Nawaz, CFO at Tesco]

When we get close to it, it'll be a quality problem to have. I feel we're at the very beginning of our journey. We have seen some nice recognition. Ultimately, our job is to continue to make sure we invest in the right way, continue to drive the profitable growth. If you remember the performance framework that we laid out, right? We said we want to run this business to continue to gain or hold market share, protect the margins, and continue to drive profits. It won't be linear, but we do want to see continuous growth. That's what we've done. I believe in that model. I believe in the opportunity to continue to create value. I feel we're on that journey as we speak.

[Clive Black, Director at Shore Capital]

Thank you very much. Thank you.

[Imran Nawaz, CFO at Tesco]

Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks, Clive.

[Operator]

Thanks, Clive. We'll now take our next question, and that'll come from Rob Joyce at BNP Paribas. Rob, please go ahead.

[Rob Joyce, Equity Analyst at BNP Paribas]

Thank you. Morning all. Just to make Clive happy, I'm going to ask two. In terms of that brand perception, it seems to be a key metric. Brand perceptions from that chart you showed, it showed a real leg up, looks like about a year ago. Can you help us understand what drove that leg up and what you've got left to really push that brand perception on from here? Just looking at the broader market, we didn't just stop talking about them, but you know, are you seeing additional space coming down from the discounters? Are you seeing any change in the way they're sort of competing in the market? I guess within that, are you seeing any signs of trade down yet from your own customers? Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks, Rob. I think I would start by saying that our brand perception drivers are actually quite broad-based. When we look across how people judge us, value clearly plays a very important part. The product quality, the shopping trip experience, the helpfulness of the colleagues, the role we play in the community, and reputation are all factors in driving brand perception. We've seen gains across the board. I think the lesson we've learned as a management team is if you over-index on any one factor, the risk is that you become a bit of a one-trick pony and that you forget about the value for money equation, which is the total package and the complete experience.

[Ken Murphy, Group CEO at Tesco]

The second thing I would say is that having applied that logic of we need to win in price, we need to win in quality, we need to win in the shopping trip, the consistency of the execution across that, across the estate, both the physical estate and the digital estate, is absolutely critical. You could be the best store in the world in Sandhurst, but if you're crap in Bromley, customers in Bromley will think you're crap. We have really worked very hard on that consistency and maintaining standards right across the board. We've worked very hard, particularly online. We've seen meaningful improvements in online metrics across the board over the last 18 months in particular. That's given us a real boost. If you take a micro example like Whoosh, for example, which has seen 60% growth this year, it is a really meaningful business for us now.

[Ken Murphy, Group CEO at Tesco]

We are meaningfully cheaper than all the other QuickCommerce players. We're quicker in general in terms of our service. We offer way less substitutions or missings because our system uniquely is integrated fully back into our stockpiles. We think we have sources of really meaningful competitive advantage that help drive that brand perception. In terms of the discounter behavior, I don't think we've seen a massive change. Clearly, there has been one change, which is both of them have started to make meaningful money now in the UK. That's clearly driving them to think about the market a bit more holistically than they would have been when they were just purely looking for a land grab. We haven't seen any reduction in their demand for new space, so they continue to open space. In fact, they're dropping bigger boxes.

[Ken Murphy, Group CEO at Tesco]

Lidl, in particular, are building bigger shops when they do go for new space, and they're expanding, particularly in the area of fresh food, which is also our greatest source of growth. They are very formidable competitors. Clearly, they're global businesses. It means that the market is as intense, if not more intense than ever from a competitive point of view.

[Imran Nawaz, CFO at Tesco]

If I could add, Rob, one of the things that was very important to us going into the year was the price competitiveness that we have versus all players. We're all 11 in the market. The one thing that is important to us and has actually worked, and that's when we say the investment's really delivered on what we wanted them to do, was the price position that we have today versus where we were in April when we spoke to you is even a bit stronger. That, to me, is no bad thing.

[Rob Joyce, Equity Analyst at BNP Paribas]

Thank you. Very clear. Just to follow on the trading down, have you seen any trading down within the basket in recent months or weeks?

[Ken Murphy, Group CEO at Tesco]

The trade down really happened three or four years ago when the first cost of living crisis kicked in. We saw a significant trade down during that period, and that behavior has largely stuck, Rob. I think the two trends that we'd observe in the last six months are an uptick in fresh food, which means more scratch cooking and more batch cooking, which is helping manage budgets. The second is more dining in. You're seeing that being part of the reason for the strong growth in Tesco Finest. We call out those two trends as customer responses to the cost of living pressure. Actually, they're relatively positive trends for us because it's a source of big investment for us, both in our fresh offering and in Tesco Finest.

[Imran Nawaz, CFO at Tesco]

Yeah, I think as you look as well, just to build on that, what's very clear to us going into the second half, the promotions that we run, the Aldi Price Match, the Low Everyday Prices, the Clubcard Prices, their importance only continues to rise going into the second half as people continue to chase value. Overall, behaviorally, that hasn't changed. People still look for the best value, and clearly, they found it with us.

[Rob Joyce, Equity Analyst at BNP Paribas]

Great, thank you very much.

[Imran Nawaz, CFO at Tesco]

Thanks, Rob.

[Operator]

We'll now move on to James Anstead at Barclays. James, please go ahead and ask your question.

[James Anstead, Managing Director of Retail Equity Research at Barclays]

Yes, good morning, Ken. Imran, two questions from me, if that's okay. Firstly, you've really emphasized this point that you've got a great customer response from the investments you've made. Now, one explanation for that could be that perhaps others didn't invest, but it sounds like you're saying that competition did increase in the way you expected. I'm just interested to know kind of how you explain to yourself why this customer reaction has been as positive as it has been, and does that change how you weigh up future investment in the offer? The second one, perhaps for Imran in particular, even the high end of your new profit guidance range at £3.1 billion implies, I think, a 3% or 4% decline in EBIT in the second half year on year compared with the 1% or 2% growth in the first half.

[James Anstead, Managing Director of Retail Equity Research at Barclays]

Obviously, there's a lot of moving parts within that. That's an oversimplistic equation. Would you highlight any particular points that we should bear in mind when thinking about 2H versus 1H? Thank you.

[Ken Murphy, Group CEO at Tesco]

Okay, so in terms of the impact of our investment decisions and why we think we're winning, I think I would call out the fact that a lot of competitors have invested heavily in price, but we don't necessarily see the same broad-based investment across product quality, the shopping trip availability, innovation, and personalization that give customers that kind of holistic package. We're also seeing certain trends, as I called out before, in terms of dining in, in terms of more demand for online fulfillment, whether that be GHS or Whoosh. We've invested very heavily behind those as well, and we don't necessarily see the same level of investment from direct competitors. What I think you're seeing, James, is that uniquely, I think we've invested in price and we've invested in all other aspects of the business as well.

[Ken Murphy, Group CEO at Tesco]

If you remember, when we gave the product profit guidance in April, the reason we gave the range we gave was because we wanted the flexibility to invest in price without compromising on all the other aspects of the shopping trip because we understood that customers value the total package, not just one element. We think that the sustainable formula for winning is to continue to invest across the board. Not only that, if you're going to win in this environment over the long term, you have to balance the needs of all your stakeholders. You have to keep investing in your colleagues. You have to keep investing in supplier relationships. That done well then gives the returns you need for investors.

[Ken Murphy, Group CEO at Tesco]

Of course, we've also been leading the charge in the industry in terms of our investment in our estate, whether that be in our store renewal program, convenience rollouts, online platform, our distribution network, or in fact, our AI and technology capabilities. You're seeing that Tesco is leading the way in terms of its investment profile. This, we think, is what it takes to deliver sustainable performance.

[Imran Nawaz, CFO at Tesco]

Yeah, on your second question, James, look, as we entered the year, if you told me that we would gain 80 bps of market share every month, I'd say to you, I'll certainly take that. I wasn't planning on, we weren't planning on seeing that much of a gain month by month, but we did. Now, as we go into the second half, we're going to lap a stronger last year half where we already started to gain very, very significant market share. We have to lap that. I'm certainly not going to be counting on hot weather as a beneficiary in the second half. Inherently, the second half is a more competitive one. If you think about Christmas, the golden period for retail where everyone tries to show up in their best, we will certainly plan to do the same. We are planning to do the same.

[Imran Nawaz, CFO at Tesco]

I would say to you that the only thing that we can't ever become is overconfident or complacent. We're entering the second half with the same attitude as we entered the first half, which is it's more competitive than before. We need to keep winning, and we shouldn't take market share gains for granted. We need to keep going after those and make sure we build a Tesco that is more resilient than where we found it. That's the plan. We'll wait and see how it plays out. We're absolutely trying to make sure we will have everything in place to keep winning. We'll report back to you when we're done.

[James Anstead, Managing Director of Retail Equity Research at Barclays]

Great. Thank you very much.

[Ken Murphy, Group CEO at Tesco]

Thanks, James.

[Operator]

Thanks very much. We will now take our next question from Manjari Dar at RBC. Please go ahead.

[Manjari Dar, VP of Equity Research at RBC Capital Markets]

Morning, Ken. Morning, Imran. Thank you for taking my questions. I also just had two, if I may. My first question is on the investments you've made online in logistics and slots and availability and the overall platform. As you look at what you've done so far versus the sort of the overall ambition, how much more do you think there is to go in terms of those investments? My second question is on the convenience store market. I just wondered if you could give some color on what you've seen there and whether you've done anything specific to drive the market share gains you've seen in the express stores. Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks very much, Manjari. In terms of online, we are investing heavily because we think it's where customers want us to. It's where we see the greatest rates of growth and the greatest demand. We think we're actually in a relatively different stage of investment depending on the proposition. The first thing I'd say to you is you should see it more holistically as a platform powered by Clubcard that we are looking to address customer needs in whatever way they want to be served. That's the first thing I'd say is you shouldn't look at them as discrete items. If I then say, what stage is each at, I would say that grocery home shopping is a relatively mature business model, but it's in very strong growth.

[Ken Murphy, Group CEO at Tesco]

We are constantly innovating and finding ways to add capacity, and as soon as we add capacity, that capacity is filled up by customer demand. We see ongoing investments in that model. On Whoosh, we think we're about at, say, 25% into the opportunity for Whoosh. It's now a really meaningful business. It's now growing at a really rapid rate. It has, as I said earlier, we believe, some real competitive advantage that we want to exploit. You can see further investment in that. I think there's quite a long way to go before we would say that model is mature. The third stage, which is F&F Online and Marketplace, is at the most immature stage of the three. It's got the greatest capacity for growth and the greatest long-term opportunities. There's a lot of work to be done to build that model out.

[Ken Murphy, Group CEO at Tesco]

Each of the three propositions are at different stages of growth. Clearly, behind that sits all the work we're doing to invest in greater personalization capability through our partnership with Adobe, exploiting retail media opportunities across all of the platforms, as well as in-store, through our supplier strategy. These are all components of a cohesive kind of single strategy, if you like, Manjari, that has, we think, plenty of legs and a lot of life left in it yet. On convenience, do you want to give two minutes on convenience, Imran?

[Imran Nawaz, CFO at Tesco]

Sure. Look, convenience, we had a really good outturn there because we, as you, I think, indicate, we gained 70 bps of market share, which is nice to see. You will also have seen, though, that it was the slower growing channel of the three. If I look at online at growing double digit, large at 4% or 5%, and then convenience at close to 2%. What's nice for us is that the value, the range that we're doing, the more sort of by area is actually resonating well with our customer base. I think it's one of the reasons why we are doing as well as we have been, having put in more own label brands in the last year, where I think we're starting to see the benefits of that as well in our ranges.

[Imran Nawaz, CFO at Tesco]

Actually, when I go across to Booker, where we are clearly a big wholesaler through the convenience channel as well, we saw real strong growth at over 4%, close to 5%. I feel overall, when I look at the convenience channel for us as such, we're doing quite well, and we'll continue to innovate as and when needed.

[Manjari Dar, VP of Equity Research at RBC Capital Markets]

That's great. Thank you.

[Imran Nawaz, CFO at Tesco]

Thank you.

[Operator]

Thank you. We'll now take our next question from Sridhar Mahamkali at UBS. Please go ahead.

[Sridhar Mahamkali, Managing Director at UBS]

Yeah, hi, good morning. Thanks for taking my question. I've got three, please. Firstly, I think, Ken, you talked about improving the price gap versus market with lower inflation in the first half. I think, Imran, you also mentioned even better price position than in April. Perhaps specifically, can you say if you've improved your price position versus all other three sort of large full-line growth competitors since April? If you wanted to be even more specific than that, we'd take it, but just across the market, particularly the three of your largest competitors will be helpful. Secondly, if I can pick up on Clive's question slightly differently on capital allocation, what are your thoughts on where we are in the journey in terms of leverage ratio?

[Sridhar Mahamkali, Managing Director at UBS]

Are you OK for a period for it to be below your sort of lower end, or if it is sustainably stuck at the lower end, do you think you want to revisit the target or use the additional headroom in the balance sheet? I know it's not a question for half a year, but more on a full year, but very interested in your thoughts and how you're thinking. Thirdly, I think Booker acquisition, again, a number of years ago, the way I think it was articulated was it was going to give Tesco access to a faster growing out-of-home market. A number of things you've talked about today seem to suggest maybe it isn't a faster growing market going forward. At home probably is going to structurally be a faster growing market than out of home.

[Sridhar Mahamkali, Managing Director at UBS]

What should we be looking for in terms of Booker in the medium term? What is the role Booker is playing in the group as you see it today?

[Ken Murphy, Group CEO at Tesco]

Great, Sridhar. Thank you. I'll speak to price gap and Booker maybe, and then I'll hand over to Imran to talk capital allocation. On the price gap, we actually improved the price gap to the total market, not just the full-line grocers. Clearly, you wouldn't expect us to give you the specifics, but you can rest assured that, as you would expect in our market, in a price-sensitive market, customers are very, very sensitive to price movements, particularly on the products that matter most to them. I think the investments we've made in improvements to our pricing algorithms and the AI-driven decision-making to really hone in on those things that really matter to customers has really, really helped us, alongside a very substantial actual financial investment in pricing.

[Ken Murphy, Group CEO at Tesco]

I think it's improving the price gap, but it's an intelligent pricing investment that really has been a big factor in our performance on pricing. If I talk to Booker for a second, I think that if you look at the average growth rate in the catering market since the acquisition, you would argue that it is a higher growth market, and it will go through peaks and troughs like every market, but it is performing very well. The second thing I would say is that Booker, within that out-of-home market, is performing particularly well. Even last year, which was a very tough year for the industry, Booker continued to take share and perform very well because of its strategy of focusing in on the most important customers who are the highest growth caterers in the market.

[Ken Murphy, Group CEO at Tesco]

As well, of course, the fact that it has a balanced model of catering and out-of-home and convenience retail customers, which means it optimizes its cost base and makes it very, very efficient from a pricing and value for money point of view. If you look at the half-year performance and you strip away tobacco, which is in a bit of a terminal decline, as you'd expect, we would all hope, you see that actually the underlying growth rates for the out-of-home market and for retail are pretty robust in the half. Booker has performed ahead of our expectations. We feel very good about Booker. We think it's performing very well in its market, and we think it's a market with plenty of opportunity.

[Imran Nawaz, CFO at Tesco]

Look, when we set out the leverage ratio and we gave a range of 2.3 to 2.8, it's fair to say we've done better on, well, we've done better on free cash flow most of the years. To your point, the ratio has come down. It's also fair to say, and very transparently, at the end of last year, we received the proceeds from the bank sale, which were fully in net debt and hadn't been returned at all yet, right? We've started that return via the buyback, and I would say we're halfway done. My expectation is by the time we're done, that ratio inches up again in terms of where we want to land. Look, am I comfortable with where we are in terms of lower end of the ratio at that 2.3 level? Yes, I feel that's the right place to be.

[Imran Nawaz, CFO at Tesco]

All the uncertainties that are out there, I think it's probably a good place to have a very strong balance sheet, which we do have. As we've demonstrated, where we see opportunities to invest, whether we see returns, we will absolutely do so in line with the capital framework that we've set out.

[Sridhar Mahamkali, Managing Director at UBS]

Thank you.

[Imran Nawaz, CFO at Tesco]

Thanks, Rita.

[Operator]

Thank you. A quick reminder before the next question for any analysts who would like to ask a question, if you could click the raise hand button at the bottom of your screen and turn your cameras on. We'll now move on to our next question from Benjamin Zoega from Deutsche Bank. Please go ahead.

[Benjamin Zoega, VP of Equity Research at Deutsche Bank]

Yeah, thank you. Just wanted to follow up with a slight clarification on Marketplace. Given the strong online sales and Delivery Saver subscriber growth, just wondering what kind of contribution or attachment rate you had with Tesco Marketplace within online, if you're able to give any color on that. I do appreciate it's early stage, but just interested to hear your thoughts on what kind of things would be needed to unlock the capacity for growth in Marketplace that you mentioned earlier.

[Ken Murphy, Group CEO at Tesco]

I don't have any specific data for you on attachment rates per se. Clearly, we've seen a big surge in sellers. We now have over a million SKUs on the platform. I think that the steps for us around Marketplace, first of all, is to complete the kind of platforming we've done and making it super easy for sellers to onboard. We've recently launched a buy box, which has really helped us in terms of driving price competitiveness on the site. Where we've chosen to place our marketing dollars in these last six months has been more heavily weighted towards our grocery home shopping and Whoosh platforms because they're in such strong growth. I think the next step for us, once we're comfortable, is to think about driving the marketing behind the platform, and that's probably one big factor.

[Ken Murphy, Group CEO at Tesco]

I would say to you right now that, as I said earlier, in terms of the three stages of driving our overall online proposition, we feel really good about the pace of growth in the more mature parts of it, like grocery home shopping, the emerging businesses like Whoosh, and the very early stage business like Marketplace.

[Benjamin Zoega, VP of Equity Research at Deutsche Bank]

Okay, understood. Thank you.

[Ken Murphy, Group CEO at Tesco]

Thank you. We're now taking our next question from François Digard at Kepler Cheuvreux. Please go ahead.

[François Digard, Head of French Equity Research at Kepler Cheuvreux]

Good morning. Thank you to take my question. Two, the one is simple. You flagged progress towards the £500 million Save to Invest targets. How much of that savings have been realized so far? How confident are you that it can fully offset the structural cost pressure, like national insurance or the new packaging levy? The second question is on retail media. Even if I understand that it is a growth accelerator more than a direct profit driver, could you help us put some figures on its size, at least in terms of revenues? How significant is it, or at least some growth space, or the market share you have in that field? Any colors you could add to the phenomenon. Thank you.

[Imran Nawaz, CFO at Tesco]

I'll do the first bit on Save to Invest. To your question, I mean, clearly this year we have an exceptional year of cost increases, whether that's NIC of £235 million, if it's the EPR levy of, what is it, £19 million. Clearly you've got our store payroll, just stores alone going up £180 million. That's just before head office and all the other increases and investments we're making. What that therefore means is the Save to Invest program is fundamental to the strategy, as in we need to do the savings to offset our own operating costs that we are incurring so that we can be at the most competitive vis-à-vis our customers. That is what we're doing. The phasing, to your very specific question, is, I would say, evenly phased, first half, second half.

[Imran Nawaz, CFO at Tesco]

That's how it's played out because a big chunk of it has started already last year. We get the benefit and then you start the second half activities because, as you might imagine, we're already now starting to think about what are the saving activities that we need to go for to make sure next year is again protected from any operating cost inflation as well. In terms of confidence to hit the number, I feel very confident. This is a core skill, I would say, in the business. Tesco is very, very good at making sure it stays efficient and lean. So far, so good.

[Ken Murphy, Group CEO at Tesco]

Hi François. As you know, we've been pretty consistent in not breaking up media income separately, as we see it as part of the broader supplier strategy and winning with suppliers in terms of helping them build their brands. I can give you some facts to give you some sort of sense of the momentum behind retail media. We called out in the release, obviously, that we've been able to grow media income by 25% this year, so far in the half, which is really, really strong. That has been on the back of a couple of drivers. One is a much broader base of clients, and we're winning with some big household names in particular. The second is that we've been expanding our physical store estate, where we've been putting screens into our convenience estate.

[Ken Murphy, Group CEO at Tesco]

The third is we've launched video on our web platform, which has also helped driving media. We have been increasingly trying to become more sophisticated about offering suppliers an integrated trade and marketing package that's both physical, digital, and obviously is aligned to product display plans, promotions, etc. It's all working really well and actually has been recognized in the industry where we've won a number of retail media awards over the last couple of months, including Retail Media Supermarket Platform of the Year. Great momentum. We do see it though as a part of the bigger ambition to be the best place for brands to grow in the world from a supermarket point of view. We continue to build out the assets and capabilities that will help brands to grow in our business.

[François Digard, Head of French Equity Research at Kepler Cheuvreux]

Thank you.

[Ken Murphy, Group CEO at Tesco]

Thanks, Francis.

[Operator]

Thanks, François. We've now got a follow-up question from Rob Joyce at BNP Paribas. Please go ahead.

[Rob Joyce, Equity Analyst at BNP Paribas]

Hi, sorry to jump on again. Thank you. Amazon, we've seen some fairly high-profile moves, closed all the UK stores, launched in 1,000 cities in the U.S., same-day delivery, just launched a big, relaunched their private label range. Just wondering your thoughts so far on how you've competed with Amazon in the UK and whether you're seeing any changes there or anything you've sort of braced for. Thank you.

[Ken Murphy, Group CEO at Tesco]

I’d start, I’ll pass over to Imran because he’ll have some views on this as well. I think that the signal that Amazon is closing its physical stores is a thing. I think it’s a recognition that this is hard. I think equally though, we’d be naive to think that somehow they’ve gone away as a competitor in grocery. I think they will instead look to focus on their areas of strength, which is their online platform, Amazon Grocery, and partnerships with other retailers. What I would say to you is that on the one hand, we feel good about the fact that we’re a hard competitor to beat in our home market, but we would be far from complacent about Amazon as a competitor for the present and the future.

[Ken Murphy, Group CEO at Tesco]

We think that we have to work very hard to make sure that we’re a viable alternative to customers in grocery.

[Imran Nawaz, CFO at Tesco]

I couldn't have said it better, so nothing to add.

[Rob Joyce, Equity Analyst at BNP Paribas]

Great, thanks. Thanks, Rob.

[Ken Murphy, Group CEO at Tesco]

Thank you.

[Operator]

That concludes the Q&A for these results. I'd just like to hand it back to Ken Murphy for his closing remarks.

[Ken Murphy, Group CEO at Tesco]

Thank you very much. We appreciate it as always that you take the time to join us. Thank you for your great questions. Both Imran and I feel very proud of the team here at Tesco. I think they've delivered a fantastic all-round performance. That has meant that more and more customers continue to shop with us. We have every intention of continuing on that vein in the second half. We think it's going to be a challenging market, but we're set up really well and we feel really good about our performance. Thank you and we look forward to catching up with you after Christmas.

Participants

Executives

• Ken Murphy, Group CEO
• Imran Nawaz, CFO

Analysts

• François Digard, Head of French Equity Research at Kepler Cheuvreux
• Freddie Wild, VP at Jefferies Equity Research at Jefferies
• Clive Black, Director at Shore Capital
• Manjari Dar, VP of Equity Research at RBC Capital Markets
• Sridhar Mahamkali, Managing Director at UBS
• Monique Pollard, Director of Equity Research at Citi
• Benjamin Zoega, VP of Equity Research at Deutsche Bank
• Rob Joyce, Equity Analyst at BNP Paribas
• James Anstead, Managing Director of Retail Equity Research at Barclays