Tesco has warned of “tough times” as Brits are “watching every penny to make ends meet” this winter.
The grocery giant reported a slimmer profit for the first half, after customer behaviour has normalised after lockdown and the supermarket has invested in keeping its prices competitive for shoppers.
The country’s largest supermarket posted a £413m profit before tax on Wednesday, down 64 per cent versus the first half of 2021 when shoppers flocked to supermarkets amid Covid lockdowns.
Group sales increased 3.1 per cent over the half-year period, which has seen many customers switching their supermarket destination for their weekly shop. Revenue also rose 6.7 per cent on the previous year to £32.5bn.
It was “too early to predict” how customer behaviour may adapt further to the macroeconomic pressures in the second half, Ken Murphy, chief executive, said.
When asked by CityA.M. about the government’s cost of living support measures for customers, Murphy said it was “very hard to tell” whether measures would go far enough to help Brits.
The supermarket boss acknowledged that ministers had made a “clearly substantial investment” in an energy price cap limiting average households’ gas and electricity bills to £2,500 per year.
Tesco had been “trying to hold back the inflationary impact as much as possible,” for customers’ weekly shop, Murphy said.
He anticipated that consumers would be eager to celebrate Christmas “in an affordable way” with shoppers eating and entertaining at home more due to cost pressures.
Brits may opt to buy “smaller” Christmas gifts and for a “tighter group” within their family and friends, Murphy told reporters on Wednesday morning.
The supermarket has already seen customers switch from branded products to own label versions and shift between categories, with some signs of shoppers opting for more frozen products.
Shoppers have also started to cut back on eating out in favour of cooking premium supermarket meals at home, Murphy suggested. Tesco’s Finest range has seen a 13 per cent year-on-year growth.
Adjusted operating profit for the UK and Republic of Ireland stood at £1.2bn, after shoppers returned to pre pandemic habits like dining out and the supermarket invested in affordable prices.
The supermarket said it would maintain its profit guidance within its previously announced range, but adjusted operating profit was likely to sit at the lower end of expectations between £2.4bn and £2.5bn.
Its share price took a hit of more than three per cent on Wednesday afternoon.
Murphy dubbed the current business rates system as “desperately unfair” and reiterated previous calls for the pitch between high street and online retailers to be levelled.
Tesco has been one of the big names backing the introduction of an online sales tax, which would see e-commerce heavyweights like Amazon forced to pay more tax on their sales.
Brick-and-mortar retailers in the “most deprived areas” had been penalised the most under the current system, he added.
In addition to its financial details, Tesco revealed that prices will be locked until next year on more than a thousand staple products as part of Tesco’s Low Everyday Prices campaign.
Staff at the supermarket will also receive a second hourly-pay increase this year, with the basic hourly rate of pay in stores is to increase to £10.30 outside London and £10.98 in the capital.
Tesco hopes to make £500m of savings this year, including cutting head office and regional management headcount by 325 roles, a move it announced last month.
However, the retailer is hopeful that redundant employees would be able to move into 500 other head office vacancies.