Tesco has announced that its profits are expected to fall this year as the UK’s largest supermarket faces heightened competition and rising operational costs in the increasingly aggressive grocery sector. The retail giant’s warning follows a surge in price wars and intense pricing strategies by rivals aiming to capture market share.
In its full-year results, Tesco reported that its adjusted operating profit for the year ahead is projected to fall to between £2.7 billion and £3 billion, down from £3.1 billion for the year ending February 22. The retailer cited the “further increase in competitive intensity” within the UK grocery market, as rivals like Asda, which recently reignited a supermarket price war, continue to push prices lower.
Last month, Asda’s announcement to significantly cut prices as part of its turnaround strategy shook the market, leading to a temporary drop in the stock prices of major supermarket chains, including Tesco, Sainsbury’s, and Marks & Spencer. Despite the pressure, Tesco’s scale, supplier relationships, and strong Clubcard loyalty scheme have helped it weather the storm, with the company reporting a rise in market share.
Chief Executive Ken Murphy said, “Our continued focus on value and quality, coupled with market-leading availability, has contributed to another year of increased customer satisfaction and our highest market share for nearly a decade.” Tesco’s market share rose to 27.9% in the 12 weeks to March 23, up from 27.3% the previous year, according to Kantar data.
The company’s group revenue, excluding VAT but including fuel, increased by 2.5% to £69.9 billion, in line with analyst expectations. Adjusted operating profit also rose by 10.6% year-on-year, meeting consensus forecasts. However, Tesco has warned that the combination of rising wage inflation and operational costs—particularly due to changes to National Insurance contributions and the national living wage—will weigh heavily on profitability for the coming year.
Tesco, which employs 330,000 people, highlighted that it would face an additional £235 million in National Insurance contributions, not accounting for the full impact of minimum wage increases. Despite the cautious outlook, Tesco remains committed to returning value to shareholders, announcing a £1.45 billion share buyback program to be completed by April 2026.
Murphy added, “Building on our strong financial performance, robust balance sheet, and positive momentum, we are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market.”
Tesco has focused on protecting its margins by offering a mix of premium and discount ranges, including price matching with budget retailers like Aldi and Lidl. The company also owns Booker, a grocery wholesaler, and operates stores in Eastern Europe and the Republic of Ireland, providing some geographic diversification.
Despite the strong underlying performance, Tesco’s shares fell 4% to 321p in early trading following the cautious profit forecast. With inflationary pressures and intensifying competition, the UK supermarket sector faces significant turbulence, and Tesco’s results suggest that even market leaders are not immune to the challenges ahead.
