The chief executive of Tesco has said food inflation has probably peaked but warns that prices are likely to stay high.
Ken Murphy, the head of the UK’s biggest supermarket chain, said the price of milk, bread, cooking oil and some vegetables such as broccoli had come down this month but inflation continued in other essentials, including rice and potatoes, as aweather issues and locked-in increases in the price of labour and energy continued to bite.
He urged the government to ease Brexit rules, which were driving up the cost of importing groceries.
A peak in annual food price inflation – currently at 19%, according to the latest Office for National Statistics data – would not mean that prices overall would start to come down, just that they would be rising more slowly.
Murphy called on the government to help tackle inflation by easing regulations linked to Brexit, which he said had made a “meaningful impact” on the cost of importing groceries into the UK from the EU and from Great Britain to Northern Ireland.
He also said the government should consider easing business rates, which he said cost Tesco £700m last year and had doubled in the past 10 years while grocery sales were “largely flat”.
Murphy said: “We would really welcome help in a number of different areas in ways that could help reduce the cost to serve [customers].”
He said price rises would continue to ease in the second half of this year but it was difficult to determine how long high levels of inflation would remain as costs were partly dependent on commodities and the cost of energy, on which long-term contracts continued to suggest prices would remain high.
“We hope we will start to see an easing of aspects of inflation that will help to moderate [it]. It is unlikely prices will return to where they were but wages are higher than they were and what’s important is the purchasing power of families,” Murphy said.
However, he said most shoppers were not experiencing the high levels of food inflation outlined in government statistics – 19% in April – as they were switching to cheaper own-label goods from big brands, from fresh to frozen and buying treats from the supermarket to celebrate occasions, or to enjoy the recent spell of warm weather, rather than dining out.
People are also buying less – with the number of items bought in Tesco shops down despite a 9% rise in UK sales in the three months to 27 May, with non-food particularly hit until the sunny weather arrived.
Murphy added that a near 10% rise in sales at Tesco’s large supermarkets was also linked to shoppers buying more in bulk and batch cooking two or three meals at once to save money.
The group also did well online – with sales up 8.2% – as Tesco said it was winning share from premium supermarkets such as Waitrose, Marks & Spencer and the online retailer Ocado.
Murphy said he did not believe a price cap on grocery essentials, an idea floated by the government last month and implemented in some countries including France, was needed in the UK and denied that Tesco had been artificially holding up prices pointing to falling profit margins for the chain.
“Market forces mean that UK grocery retailers are consistently having to be the sharpest possible in terms of value,” he said.
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He said consumers were shopping around more to save money, so Tesco “almost has to win every mission” from consumers – with discounters opening more stores and taking share.
Total sales for the group rose 8.2%, as Murphy said the group had experienced challenging trading conditions in Hungary, where it operates a number of stores, after government support was scaled back. However, strong trade at its Booker wholesale group had experienced a bounceback in custom from cafes and restaurants.
Commenting at the group’s annual shareholder meeting on Friday on the exit of the Tesco chair, John Allan, after the Guardian revealed allegations of inappropriate behaviour, Murphy said the retailer’s board had “acted in the best interest of Tesco and [staff]” in agreeing to his departure.
“It was a difficult decision but coincides with the fact that a search for a new chairman was already well under way,” he said, adding that a permanent replacement for Allan would be announced “in due course”.
The Guardian reported last month that Allan allegedly touched the bottom of a senior member of Tesco staff in June 2022, at the company’s AGM.
At the time his departure from Tesco was announced, Allan said: “It is with regret that I am having to prematurely stand down from my position as chair of Tesco plc following the anonymous and unsubstantiated allegations made against me, as reported by the Guardian.
“These allegations are utterly baseless, as the internal procedures undertaken by Tesco prove. Tesco undertook an ‘extensive internal review’ which included inviting Tesco employees and ex-employees to come forward on an anonymous basis if they had concerns about my conduct.
“Tesco also conducted outreach to those who attended the meeting where the incident allegedly happened, and video footage of the meeting has also been reviewed. There is no evidence of any wrongdoing at that time or at any stage of my chairmanship at Tesco and I remain determined to prove my innocence.”
