Tesco says price pressures easing as profits soar

Tesco has said price pressures on grocers have eased as it reported bumper sales and profits for the past year.

The UK’s biggest supermarket chain said pre-tax profits hit £2.3bn, up from £882m, while sales rose by 4.4% to £68.2bn in the year to 24 February.

The company said price inflation in groceries had “lessened substantially”.

However, its boss Ken Murphy said the firm was conscious “things were still difficult for many customers”.

Tesco had “worked hard” to cut prices, he said, and “doubled down” on schemes aimed at offering shoppers better value for money, such as its Aldi Price Match offer and Clubcard promotions.

More than 4,000 products were cheaper at the end of the year than at the start, with an average price cut of about 12%, the firm said.

Mr Murphy said he expected food inflation – which measures the rate at which food prices rise over time – to stabilise in the “low single digits for the rest of the year”.

However, he said that the cost increases seen across select items like cocoa, potatoes and coffee might prove “sticky”.

The chain also came in for criticism from the Unite union. General secretary Sharon Graham said Tesco was “raking in mountains of cash while families struggle to put food on the table because of sky high prices”.

Tesco has more than 330,000 employees and a 27.3% share of the grocery market, which Mr Murphy said was growing as customers “respond to the improvements we’ve made to the value and quality of our products”.

He told reporters on Wednesday that shoppers were also sticking to habits they had taken on over the last two years as the cost of living soared.

“I do think there is a little bit more now of a habit of eating in and entertaining in and then treating yourself,” he said.

Like-for-like food sales, which strip out the effect of new shops opening, were up by 7.7% in the UK, with consumers opting for premium ranges like Tesco Finest and meat-free ready meals to treat themselves at home.

While home and clothing sales were flat as the retailer stopped offering big-ticket electrical items, it said that womenswear had held up well.

Global retail analyst at Bloomberg Intelligence Charles Allen told BBC Radio 4’s Today programme that the company had done a “lot of work” to keep up with its rivals such as German discounters Aldi and Lidl.

He said that the results were “broadly in line” with expectations, though “just a shade weaker than anticipated”.

He said things would not get any easier for the retailer during the coming year as increasing staff bills would take effect just as inflation was slowing down.

This meant “you haven’t got the same sales boost” from higher prices, he said, adding that the company would need to focus on selling a higher number of items.

Asked what Tesco was doing to hang on to new customers, Mr Allen said “mostly it’s been very price competitive”.

It had also “worked away at its costs”. For example, he said they were taking specialist counters out of the shops, which cut costs and enables it to be “attractive to a wider group of consumers”.

In the year ahead, the supermarket was still, however, continuing on its cost-cutting drive, aiming for £500m in savings in the year ahead.

Like many other retailers, it will also face a higher wage bill as a higher minimum wage has come in and it joined other retailers in increasing pay overall in a bid to retain staff.