Tesco ramps up price war after profits tumble

Tesco has ramped up the supermarket price war as Britain’s biggest grocers battle to win over the nation’s cash-strapped shoppers.

As soaring costs forced it to trim profits forecasts for the year, the company said it would freeze the price of more than 1,000 products until 2023.

It includes everything from toothpaste, cotton buds and orange squash to basmati rice, oven chips and coffee.

Profits slump: In its interim results, Tesco said profits fell 9.8% to £1.3bn in the six months to August 27, despite a 3.1% rise in sales to £28.2bn

‘We know customers are facing a tough time and watching every penny to make ends meet,’ said Tesco chief executive Ken Murphy. 

‘That’s why we’re working relentlessly to keep the cost of the weekly shop as affordable as possible.’

But with supermarkets facing rising costs, including energy, transport and wages, moves to keep prices as low as possible have hit profits.

In its interim results, Tesco said profits fell 9.8 per cent to £1.3billion in the six months to August 27, despite a 3.1 per cent rise in sales to £28.2billion.

The company, which has 3,822 stores in the UK, now expects profits for the full year of between £2.4billion and £2.5billion.

That was the lower end of previous guidance of between £2.4billion and £2.6billion and a fall from the £2.7billion notched up in the previous year. Shares fell 4.1 per cent, or 8.7p, to 201.3p.

The traditional Big Four supermarkets of Tesco, Sainsbury’s, Asda and Morrisons have been under siege from German discounters Aldi and Lidl.

Aldi recently leapfrogged Morrisons to become Britain’s fourth biggest grocer, underlining the dramatic shake-up in the industry. 

Tesco is the largest with a 26.9 per cent share of the market. Murphy said customers are turning to Tesco-branded products and frozen food, and buying less to ‘make their money go further’. 

He vowed to remain ‘laser-focused’ on value, saying it was putting up prices ‘a little bit less and a little bit later’ than rivals.

AJ Bell investment director Russ Mould said: ‘Tesco has to try to offer attractive prices to stave off the threat from Aldi and Lidl and while it can rely on its purchasing power to some extent, it is still having to sacrifice margins to meet this challenge.

‘The uncertainty is palpable in the company’s outlook and inevitably this will make the market rather nervous.’

Murphy stressed that Tesco’s position against Aldi and Lidl is ‘more competitive than it has ever been’ with the price freeze taking it ‘one step further’.

And he said that while there were significant uncertainties in the economy ‘customers are determined to enjoy Christmas.

‘We think it’s going to be a Christmas that people are going to want to celebrate but will want to celebrate in a more affordable way,’ he said. 

Tesco, one of the UK’s biggest employers, also said it would raise the pay of its staff by 20p to £10.30, and to £10.98 in London. It takes the total pay rise to almost 8 per cent this year.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘Among the larger players, Tesco’s arguably been one of the stand-outs in the battle against low-cost outfits, but pressures on consumer spending can only build for so long before something must give.

‘That pain’s slowly starting to feed into performance, as shopping behaviours continue to normalise from bumper levels seen over the pandemic and inflation keeps costs high – that’s meant full-year profit guidance got a slight downgrade toward the bottom end of the previous range.’

Food fight with Aldi and Lidl

Snub: Tesco chief exec Ken Murphy (pictured branded Aldi and Lidl the ‘limited range discounters’

A war of words has broken out between Britain’s long-established grocers and German upstarts Aldi and Lidl.

Aldi’s surging sales recently meant it became the UK’s fourth biggest supermarket – booting beleaguered Morrisons out of the so-called ‘Big Four’.

That prompted Aldi’s chief executive Giles Hurley to declare that customers were flooding to its stores from the ‘traditional full-price supermarkets’.

Major grocers took umbrage with the description and Tesco chief executive Ken Murphy (pictured) struck back yesterday, branding Aldi and Lidl the ‘limited range discounters’.

The war of words has underlined the ferocity of the competition between the grocers as they battle for business.

This post first appeared on Dailymail.co.uk