Tesco Chairman John Allan says 'the worst is still to come'
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Supermarkets are facing a growing battle to stay competitive as the rising cost of living dents household spending power. With inflation revealed to have reached seven percent today Tesco has used its yearly results to affirm its commitment to offering value on price. The supermarket said it had extended its Aldi Price Match and Clubcard Price promotions as well as re-launching 1,600 Low Everyday Prices. Tesco Chief Executive Ken Murphy said: “Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check – working in close partnership with our suppliers, as well as doing everything we can to reduce our own costs.
“Through our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, we are making more products more affordable, in more places than anyone else.”
However the firm acknowledged there were “significant uncertainties in the external environment” and as a result predicts profits to be slightly lower this year.
2021 proved to be a strong year for Tesco with retail adjusted operating profit soaring 34.9 percent to just under £2.65billion.
Its guidance for the year 2022-23 now predicts £2.4-£2.6billion.
Matt Britzman, Equity Analyst at Hargreaves Lansdown, said: “Tesco’s strategy relies on its ability to offer prices that compete with low-cost peers like Aldi and Lidl, and it’s executed on that very well with price match campaigns and a focus on Clubcard rewards.
“But that doesn’t come cheap, and keeping that proposition alive is going to cost more in the coming year than ever before as inflation hits both Tesco’s own costs and their customers’ wallets.
“That’s one of the reasons guidance for 2022 has profit coming in lower than what we’ve seen today, and markets haven’t reacted well to the news with shares down 4.6 percent in early trading.”
Recently Tesco was forced to increase milk prices in order to pay higher costs to suppliers.
Supermarkets are also increasingly fearing consumers will scale back spending on luxury items as the cost of living bites.
So far though Tesco has remained well positioned against many of its competitors.
Joshua Warner, Market Strategist at City Index, noted: “Tesco is the only ‘Big Four’ supermarket that is successfully competing with Aldi and Lidl, while rivals Sainsbury’s, Morrisons and Asda continue to cede market share to the German discounters.”
Pressure is likely to continue in the coming months as energy prices drive up the cost of food production and transport while key products such as wheat and sunflower oil have been placed under acute pressure by the war in Ukraine.
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Data from the British Retail Consortium’s (BRC) Shop Price Index has shown so far retailers have managed to keep the cost of essentials below inflation levels recorded by the Office for National Statistics, however it is concerned as to how long this can last.
Helen Dickinson, Chief Executive of the BRC, warned: “Households face a plethora of rising costs, with higher inflation to come as the increase in the energy price cap pushes up April’s figures.
“Retailers are not exempt from these pressures, as the costs of transport, energy, raw materials and staff wages all continue to rise.”
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