Tesco has cautioned that the UK supermarket sector is heading for a fierce price war in the run-up to Christmas, even as the retailer lifted its annual profit guidance following a successful summer trading period.
The UK’s largest grocery chain now expects to deliver full-year profits of up to £3.1 billion, £100 million higher than its earlier forecast. The upbeat outlook comes after the company cut prices on 6,500 products by an average of 9%, a move that drew in shoppers and helped Tesco increase its market share.
The retailer said its own grocery inflation was running “well behind” the industry-wide level of 4.9%, as reported by Worldpanel. Chief executive Ken Murphy acknowledged that while Tesco had benefitted from its price strategy, rivals were also signalling aggressive competition.
“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 are anticipating the second half could be more intensive, not less,” Murphy said. He added that Tesco would continue to offer “pulsed strong deals” throughout the festive season, though he warned that consumers appeared cautious ahead of the November budget.
In its half-year results to 23 August, Tesco reported a 5.1% increase in group sales to £33 billion. UK like-for-like sales were up 4.9%, supported by strong demand for barbecue foods during the warm summer and a consumer shift toward premium ready meals and fresh ingredients as households opted to cook more at home rather than dine out.
Despite the sales growth, pre-tax profits slipped 6.3% to £1.3 billion, weighed down by restructuring costs, the separation of Tesco’s banking operations, and continued investment in price reductions. The company said these pressures had been partially offset by efficiency savings and improved demand forecasting.
Murphy also criticised government policy on business taxation, highlighting an additional £235 million in employer national insurance contributions and £90 million from a new packaging levy this year. “Enough is enough,” he said, urging ministers to deliver on promises to create a fairer system and exempt larger retailers from further business rate hikes.
With household budgets under strain and competition intensifying, Tesco said it remained confident heading into the crucial Christmas trading period. The supermarket expects consumer demand to remain strong for value-driven offers, with its strategy focused on balancing affordability for shoppers while safeguarding profitability.
The coming months are set to test the sector as supermarkets battle for customer loyalty in what could be the most competitive festive season in years.
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