Tesco’s chief executive said there were “encouraging” signs that inflationary pressures on Britain’s biggest supermarket chain were easing as the group reported an 8 per cent rise in quarterly sales largely driven by higher prices.
“We do believe that we’re past the peak inflation,” Ken Murphy said on a call with reporters on Friday. “It does remain stubbornly high as you see energy hedging and wage inflation still in the system and working its way through, but the early indicators are positive.”
In a trading update on Friday, the company said large stores had performed particularly well, with like-for-like sales up 9.9 per cent, while online sales rose 8.2 per cent.
Overall sales also climbed 8.2 per cent, to £14.8bn in the past three months, fuelled by higher prices, while volumes continued to drop, particularly in general non-food merchandise. Like-for-like fuel sales plunged 15.7 per cent year on year.
Tesco had not been involved in recent discussions with the UK government about plans to cap some food prices, Murphy said, insisting the company was not “profiteering” from surging food inflation.
“The year before we had operating profits of about 4.4 pence in the pound and this last year it was down to 3.8 pence, so we don’t believe that would be called profiteering,” he said. “We think that’s a pretty slim margin to run a business our size on.”
This week, Bank of England governor Andrew Bailey said that food price inflation had been slower to fall than global commodity prices. Murphy said on Friday it was unfair to blame the industry for not lowering prices more quickly.
He added that labour costs were likely to remain a challenge for UK employers even as commodity prices fell.
Tesco recently cut prices on own-brand bread by 12 per cent and pasta by 16 per cent, while broccoli is 16 per cent cheaper, it said. It also lowered the price of cereal as wheat prices have come down, as well as dairy produce and oil, but it was “hard to predict” what other prices would drop, the company said, adding that the price of some commodities, such as potatoes and rice, had not decreased.
The company said it had benefited from shoppers switching from more expensive retailers as it expanded its “Finest” food range. Customers have been trading down and shopping around more as inflation has shot up.
Tesco expects adjusted operating profits in its retail business, its preferred profit measure, will be flat this financial year. It made £2.5bn last year.
William Woods, an analyst at Bernstein, said: “While food inflation has shown signs of softening, we continue to expect relatively high levels for 2023, which should continue to drive outperformance at Tesco versus peers.”
Source: Economy - ft.com
