Tesco predicts price war before Christmas amid ‘pressure on household budgets’ | Tesco

Tesco has warned of an intensifying price battle in the run-up to Christmas amid “pressure on household budgets” but upped its full-year profit expectations by £100m after it grabbed market share and drew in more shoppers by keeping a lid on inflation over the summer.

The UK’s biggest retailer said it expected to make annual profits of up to £3.1bn, up from a previous maximum of £3bn, as it said efforts to cut the price of 6,500 items by an average 9% had “worked better” than it predicted. The company said its rate of inflation was “well behind” the latest headline rate for groceries of 4.9% set out by the analysts Worldpanel, formerly known as Kantar.

Referring to comments by Asda in March that it would invest “a pretty significant war chest” in cutting prices, Ken Murphy, the chief executive of Tesco, said: “Some of our competitors went pretty strong on their statement of intent at the start of the year and have acted on that. It doesn’t feel that rational. We have invested in price to maintain our momentum and we are anticipating the second half could be more intensive not less.”

Murphy said Tesco was optimistic about the run-up to Christmas as it would be “pulsing in strong deals” over the next three months, and warned there were signs that shoppers were nervous about spending before the November budget.

He said: “They are concerned and worried about the budget and the economic outlook.

“Competitive intensity remains high, and with continued pressure on household budgets we remain committed to ensuring customers get the best possible value by shopping at Tesco.”

Tesco, which owns the Booker grocery wholesaler and stores in Ireland and central Europe as well as the UK, revealed a 5.1% rise in group sales to £33bn in the six months to 23 August.

Trading in the UK, where sales at established stores rose 4.9%, was helped by the warm summer which prompted households to splash out on barbecue foods. Murphy said shoppers were also buying more premium ready meals and fresh fruit and vegetables to cook at home instead of dining out for a variety of reasons, including to save money.

Pre-tax profits slipped by 6.3% to £1.3bn reflecting restructuring costs and the separation of the group’s banking division as well as its investment in price.

Tesco said it had implemented efficiency savings to offset additional costs from new government measures, including higher employers’ national insurance contributions which cost it £235m, and a new packaging levy that amounts to £90m this year. He said it was using AI to better estimate demand and cut waste and to “optimise” staff hours in stores.

However, Murphy warned the chancellor that “enough was enough” in additional taxes and regulatory costs for business after last year’s budget.

He called on the government to exclude all retailers from planned higher business rates for larger premises and to “fulfil their own promise of making a fairer system”.