​Tesco Responds to Food Inflation: Major Price Cuts and Upbeat Forecasts

​Tesco Responds to Food Inflation: Major Price Cuts and Upbeat Forecasts

Posted by Emily on 6th Oct 2023

Tesco has announced a decrease in food inflation and is reducing the prices of 2,500 products by an average of 12%. This comes amidst the introducing of more budget-friendly own-brand products in its Express stores, which are up to 40% more affordable than the products they've replaced.

Self-service checkouts in Tesco in Poland Image Source: WrS.tm.pl, Public domain, via Wikimedia Commons

Key Points

  • First half core profit up 13.5% 
  • Raises full year profit guidance to £2.6-2.7bn 
  • Says British consumer in 'reasonable health' 
  • Shares up 2.3%

Ken Murphy, Tesco's Chief Executive, conveyed that consumer confidence is rising as concerns over mortgage rates and grocery costs are diminishing. "While some families will still find it tough, we believe most of our customers are in a positive position for the upcoming Christmas," he commented.

This announcement was accompanied by the supermarket's report of a 14% increase in its adjusted operating profit. Over the summer, prices for pasta, oil, and dairy products like cheese, milk, and yoghurt decreased. Conversely, some products like chicken, other meats, and potatoes are witnessing a price hike.

Murphy also highlighted the cooperative efforts of suppliers to manage costs. "Over the past six months, we've observed a steady reduction in inflation, showing our suppliers' commitment to cost management," he stated.

Tesco shelter Image Source: The original uploader was TerriersFan at English Wikipedia., CC BY 2.5, via Wikimedia Commons

The British Retail Consortium recently reported a decline in UK food prices for September, the first in almost two years, sparking hope that the peak in grocery price inflation might be behind us. Analysts attribute the dip in grocery inflation partly to competitive pricing amongst supermarkets. Despite the recent declines, food prices remain 9.9% higher than last year due to the rising costs of many staple items.

According to Murphy, specific inflationary pressures, such as increased wages and oil prices, are expected to persist. He added that the price decreases driven by globalisation, seen in the past, may reverse.

Consumers are also beginning to spread their Christmas spending, with many purchasing frozen food items several months in advance. "We sense a more positive outlook among our customers than last year. The general mood is leaning towards a festive celebration," Murphy noted.

When questioned about the potential cancellation of the Manchester section of the HS2 rail project, Murphy refrained from direct remarks but expressed Tesco's wish for the government's commitment to equal growth and prosperity across the UK.

Tesco's upmarket Finest range has seen robust growth, introducing over 150 new products, capturing a clientele from other premium retailers like Waitrose. Murphy revealed that Tesco's pricing difference with German discounters Aldi and Lidl, has decreased by half in three years.

For the first half of the year, Tesco reported an adjusted operating profit of £1.5bn, a 14% increase from the previous year. With wholesale food costs declining, the retail giant also revealed an 8.4% increase in sales compared to the same period last year, mainly due to higher prices.

Tesco Forres Image Source: Bing 2018161412, CC BY-SA 4.0, via Wikimedia Commons

Murphy told the BBC that consumers are witnessing more stability in food pricing. Recognising the financial pressures many households face, he reiterated Tesco's dedication to reducing food costs where possible.

Earlier this year, major supermarkets were accused of profiting from rising prices, but these claims were refuted. A subsequent investigation by the Competition and Markets Authority found no evidence of excessive profit-making, although they urged clearer pricing from retailers. This week, Tesco revised its annual profit forecast, expecting retail profits to be between £2.6bn and £2.7bn, a rise from the earlier £2.5bn prediction.


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