Tesco has had a rocky week.
In the midst of a cost of living crisis, remaining loyal to businesses is tough, as the nation has been forced to favour being frugal over buying name brand goods.
This revelation rang all too true for Tesco on Thursday, as Britain’s biggest supermarket reported its operating profit was down almost seven per cent on last year as chief executive Ken Murphy recognised that it was an “incredibly tough” year for many of its customers.
Much of the market has agreed that Tesco’s loss was fuelled by a supermarket price war with Lidl and Aldi as the grocery chain spent much of this year slashing its prices to compete with the low cost that the German discounters appear to offer shoppers so easily. .
“It’s apparent they’ve lost loyal customers to more affordable discount grocers. The introduction of the ‘Aldi price match’ by Tesco speaks volumes,” Tara Flynn, personal finance expert of price comparison site Choosewisely.co.uk, said.
Flynn believes that the supermarket is a little “behind with the times”, which appears to be reflected in its low profits.
She explained: “Tesco has announced it will be increasing the minimum order value for online shopping next month from £40 to £50.
“Although the supermarket claims to prioritise its customers’ welfare, this change will make it more challenging for individuals who only require a small number of groceries delivered, such as single or vulnerable people.”
Profits and price cuts
While the brand may be hiking the price of its online shopping, it has gone on a major cost cutting spree – announcing on Wednesday that it would slash the price of a pint of milk from 95p to 90p and two pints from £1.30 to £1.25.
However, Tesco only had the upper hand for one day as rivals Aldi and Sainsbury’s quickly followed suit introducing identical price cuts.
“It’s little wonder that Tesco is targeting milk in its latest round of price cuts, given that the lure of a cheaper pint could draw more shoppers through the door at a time when supermarkets are fiercely fighting for market share,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told City A.M.
As a fierce price war continues, Streeter said the market is still “way off” peak price cuts given how hot grocery inflation still is.
She continued: “Supermarkets will be keeping a close eye on easing inflationary pressure on suppliers and are likely to start demanding more reductions as input prices start declining further.’’
Can Tesco recover – and keep its crown?
As Tesco ploughs ahead for the year, chief executive Murphy said the outlook for profits remains “broadly flat” in 2023/24.
To navigate this difficult period, Julie Palmer, partner at Begbies Traynor, said that Tesco needs to show that it is “doing everything it can to help consumers”.
She explained: “The growth of discounters such as Aldi and Lidl has only been helped by pressure on consumers and Tesco needs to make sure it isn’t seen as an increasingly expensive option against no-frills competitors.
“Cutting more prices as inflation declines will signal that the supermarket giant is balancing the needs of its customers with those of its shareholders.”