Tesco profits almost triple as inflation falls

Chain denies profiteering, claiming strong showing is down to leading rivals in price competitiveness

TESCO has hailed a “substantial” drop in inflation for millions of shoppers as Britain’s biggest supermarket revealed profits almost tripled last year.

A surge in sales led to £2.3bn of profits for the year to February 2024, compared to £882m for the year before.

Following the jump, Ken Murphy, the chief executive, hit back at claims of profiteering as he said Tesco is leading rivals in terms of price competitiveness.

Shares in Tesco rose by more than 6pc following the latest update.

Tesco’s success follows a period of intense pressure on supermarkets amid the cost of living crisis, as earnings struggled under the weight of spiralling food costs and a squeeze on shoppers. However, Mr Murphy signalled that Britain had recently turned a corner in its battle against inflation, saying price rises “slowed substantially, especially in the second half of the year”.

He pointed to the latest Kantar figures showing grocery inflation was at its lowest level in two years in March, falling to 4.5pc after hitting 17.5pc last year. Mr Murphy said: “That represents a massive fall and we operate well below that level. Our rate of inflation that our consumers are experiencing is lower.”

He said Tesco was expecting inflation to stabilise in the low single digits for the rest of the year. “That is our planning assumption,” he said.

It will fuel hopes that Britain will be able to start lowering interest rates in the coming months, providing a boost to mortgage holders.

Rates are currently at their highest level in almost 16 years, as policymakers at the Bank of England seek to keep inflation under control.

Economists have recently indicated that inflation is likely to drop below the Bank’s 2pc target in the coming months, helped by falling energy bills.

Mr Murphy said commodity prices were also coming down as the impact of inflation “reduced gradually across the year”. This has led to large swathes of products falling in price, including olive oil. However, he warned that inflation remains sticky for items such as coffee, chocolate and potatoes.

To counter continued pressures, Tesco is preparing to cut more prices having already lowered 4,000 items over the past 12 months.

Mr Murphy wants Tesco to remain the cheapest traditional grocer in the face of growing price competition from rivals: “I expect it to be another highly competitive, highly intense year.”

The drive for greater price cuts will come as a rebuff to union bosses who have accused supermarkets of not doing enough to help households.

Unite general secretary Sharon Graham criticised the Tesco results yesterday. She said: “Tesco is raking in mountains of cash while families struggle to put food on the table because of sky-high prices.”

The union claimed that “many companies have used the cost of living crisis to grab excessive profits”, adding: “There is an epidemic of profiteering in our economy – the Government has failed to curb it.”

However, the claims were rejected by Tesco, as bosses argued it had taken a “balanced approach” to cutting prices at the same time as rewarding employees and investing in its operations.

This includes handing its workforce a £70m “thank-you” payment.

It follows a period in the wake of Russia’s invasion of Ukraine when supermarkets saw profits plunge as margins were squeezed by higher food costs. The Competition and Markets Authority subsequently launched an investigation into profiteering but found no signs supermarkets’ “greedflation”.

Following its investigation, the CMA found that margins across supermarkets fell from an average of 3.2pc in 2022 to 1.8pc in 2023.

Since then, the CMA has instead focused on major food and drink suppliers, which have been accused of raking in margins of more than 15pc.

Tesco finance chief Imran Nawaz said margins had now “basically recovered to pre-pandemic levels”.

Despite this, the retailer is planning to make £500m in efficiency savings in the year ahead by adopting more artificial intelligence. Profits are expected to rise marginally over the next 12-month period after what Mr Nawez said was a “really strong year”.

Tesco has recently been extending its lead over supermarket rivals, as it has drawn in more customers through its loyalty card scheme. The number of households with a Tesco Clubcard rose by more than 6pc over the past year to hit 22m.

The uptick in market share means Tesco has cemented its position as Britain’s biggest supermarket, holding more than 27pc of the market, according to Kantar. Its next closest rival is Sainsbury’s with a 15.2pc share, while Asda has fallen to 13.8pc.

Mr Murphy said: “We’ve never been cheaper than Asda in our history but we’ve been consistently so for 16 months. We hadn’t been winning business from premium retailers but we’ve been doing it again for more than 12 months.”

He said Tesco had given a “reasonable return” to shareholders and had invested back into its business.

Mr Murphy added: “We think this is a business that’s building positive momentum where every stakeholder can benefit. We’re paying considerably more tax than we were three years ago.

“These are all positive things for the country and for the economy and so we’re quite proud of it.”

‘This is a business that’s building positive momentum where every stakeholder can benefit’