The UK’s largest supermarket chain Tesco said it would struggle to increase profits this year amid “unprecedented levels of inflation” across its supply chain.
Chief executive Ken Murphy said the group had been grappling with the rising costs of products from suppliers while also trying to prevent customers being lured away to discount chains.
Retail adjusted operating profit, which excludes petrol, will be “broadly flat” this financial year Tesco said on Thursday, as it disclosed that the measure of profits fell 6.3 per cent to £2.4bn in the year to February, in line with expectations. Overall pre-tax profits halved to £1bn.
The group has invested in several initiatives such as matching discount chain Aldi on prices to prevent shoppers from defecting to rivals. “We are the most competitive we’ve ever been on price,” Murphy said.
Price increases at Tesco were “meaningfully lower” than the headline grocery inflation rate of 17.5 per cent recorded in March by Kantar, he added.
Tesco customers have been swapping more expensive red meat for white meat to lower their food bills, as well as cooking more meals at home and increasingly using up leftover ingredients.
The chief executive predicted that inflation would come down later this year, led by falling prices in commodities such as oil and grain, but the price of rice and protein would remain higher.
The chain, which has more than a quarter of the UK’s grocery market share, said it was aware of the pressures its suppliers were facing from high day-to-day costs, including higher energy bills, but it was not “afraid to have direct conversations when necessary in the interest of our customers”.
Murphy argued that Tesco was “very balanced in its approach with suppliers” although it has been able to use its size to secure better terms than competitors on certain items. Last summer, the chain was embroiled in a dispute over pricing with Kraft Heinz that led to temporary gaps on shelves.
The group’s full-year sales climbed 5.3 per cent to £57bn. Including fuel, revenue rose 7.2 per cent last year to £65.7bn.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “While profits are expected to be flat for the year ahead, the continuation of its share buyback scheme and strong execution of its strategy mean Tesco remains in good shape.”
Tesco’s shares, which are up about 19 per cent this year, rose 2 per cent on Thursday morning.
Separately, Murphy said that the allegations of workplace misconduct at the CBI were “clearly very serious” but it declined to comment further on whether it would review its membership until “the investigation has run its course”. Tesco chair John Allan was previously president and vice-president of the employers’ organisation.
