- Tesco cuts prices, boosts profits.
- Market share grows in competition.
- Strong performance amid inflation.
Inflation subsided in the first half, and Tesco executives expect further cost pressure reductions ahead.
The supermarket chain, with £34 billion in sales in the six months ending 26 August, announced plans to “continue lowering prices whenever possible.”
Tesco raised its annual profit forecast as consumers bought more from the Finest range and the company gained market share at the expense of ‘premium’ retailers.
Tesco, holding a 27 percent share of the UK grocery market, stated its overall price increases are below the headline rate, boosting market share. The company now anticipates retail adjusted operating profit for 2023/24 to be between £2.6 billion and £2.7 billion, up from the prior estimate of approximately £2.5 billion.
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Ken Murphy, the group’s CEO, acknowledged the challenges faced by many households due to persistent cost-of-living pressures. He committed to reducing food costs, emphasizing that Tesco is consistently the most affordable full-line grocery store.
Murphy noted the group’s investment in keeping prices low had contributed to market share gains both in-store and online. Consumers are choosing Tesco over premium retailers.
While external pressures persist, Murphy anticipates food inflation will continue to decline in the second half of the year. Tesco is in a strong position to invest for customers and will continue lowering prices to ensure an affordable Christmas.
The group’s adjusted operating profit for the first half increased by 13.9% to around £1.5 billion.
Total revenue, excluding petroleum, exceeded £34 billion, with UK like-for-like sales rising by 8.7%. Statutory profits after tax rose to £929 million, up from £252 million in the previous year, despite a £579 million impairment charge that lowered the figure.
In September, UK food prices fell month-over-month for the first time in over two years, with annual food price inflation down to 9.9% for the fifth consecutive month, boosting consumer confidence.
Tesco, like most supermarkets, has lowered prices on staple foods like milk, pasta, and vegetable oils as commodity and input costs decreased. The company competes with rapidly expanding German discounters like Aldi by matching their prices on essential commodities.
Tesco has also benefited from consumers entertaining at home and switching from more expensive grocery stores.
The group plans to reduce prices on around 2,500 products, from bread to asparagus, by approximately 12% by the end of the first half. Clubcard Prices on over 8,000 items throughout the store will save consumers around £390 per year.
Tesco shares rose by 1.96 percent or 5.10 pence to 264.70 pence on Wednesday, having increased by more than 24 percent over the past year.
The company views the buyback programme as a key driver of shareholder returns, reflecting its strong balance sheet and confidence in delivering strong future cash flows.
The company remains on schedule to save £600 million by year-end.
Richard Hunter, director of markets at Interactive Investor, said, “Tesco consistently provides value to customers and shareholders, maintaining its position as the company to beat.” The company’s size, strength, reduced food inflation, and substantial cost reduction enable it to lower prices, attracting more consumers with initiatives like Aldi Price Match, Low Everyday Prices, and Clubcard Prices.
Despite a lackluster performance in recent months, shares have responded positively, rising by 24 percent over the past year compared to a 5.4% gain for the FTSE100 as a whole. Investors and consumers remain interested in Tesco, affirming its position as a preferred choice in the sector.
Sue Davies, head of food policy at Which?, noted that certain supermarkets have performed relatively well during the cost of living crisis as many consumers struggle to afford food.
Richard Lim, CEO of Retail Economics, called the results incredibly impressive, attributing them to Tesco’s unwavering focus on value, which has led to robust growth and a significant return to profitability.
