Tesco has said it is in its most competitive pricing position versus the discounters to date.
CEO Ken Murphy said today that the retailer had locked down the price of over 1,000 everyday grocery lines until January. He said offering value to customers struggling with the cost of living crisis was its key priority.
Murphy was speaking as Tesco reported revenues, excluding VAT and fuel, in the 26 weeks to 27 August, up 3.1% to £28.2bn, with a 3.2% rise on a like-for-like basis. Fuel sales soared 38.4% to £4.3bn, pushing total group revenues up 6.7% to £32.5bn.
Growth accelerated in the second quarter as higher prices kicked in, but Murphy emphasised that Tesco had stuck to its strategy to inflate “a little bit less and a little bit later” than rivals.
A 2.7% rise in like-for-like sales in the UK & Ireland was mostly driven by a 13.9% jump at Booker, particularly from the catering side of the operation, while central European sales also increased 10.4% in the half.
However, despite the top-line improvement, adjusting operating profits fell 9.8% to £1.3bn as volumes normalised from elevated pandemic levels and non-food sales slumped 6%. Tesco also said it saw significant cost inflation and some impact from a step up in own-label sales as customers took steps to manage the pressure on household budgets.
An acceleration of its ‘Save to Invest’ programme – with £500m of savings expected this year – strong Booker sales and a reduction in Covid-related costs helped mitigate the fall in profits.
Pre-tax profits fell 63.9% to £413m following a £626m non-current asset impairment charge.
Murphy would not be drawn on its price gap to Aldi but said it was “significantly less” than the 15% suggested in a recent report from analysts at Bernstein.
“We have moved dramatically on that in the last 12 months,” said Murphy, who agreed that part of reason for closing the gap was the discounters increasing prices faster than the market in the past few months.
Tesco said its products from its Aldi Price Match now featured in 99% of all large baskets and over 80% of top-up shops. It also said it Clubcard Prices initiative was helping drive customer satisfaction of its loyalty scheme. Murphy said today 75% of transactions across the business featured Clubcard.
Tesco stuck to its full-year profits guidance of between £2.4bn and £2.5bn but said the figure would be towards the lower end of the range, which it previously set at between £2.4bn and £2.6bn.
Murphy said: “Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.
“As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market. Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders.
“Most importantly, we will stay focused on delivering value for our customers and supporting them in every way we can.”
Tesco also revealed a second hourly pay increase this year for staff, with basic hourly rate of pay set to increase a further 20p to £10.30 (or £10.98 in London), and a doubling of our colleague discount to support them this Christmas.
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