Thursday, July 7

UK’s Tesco says customers changing behavior as inflation hits

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LONDON — Tesco, Britain’s biggest retailer, said it was seeing early indications of changing customer behavior due to surging inflationary pressures that had made the market environment “incredibly challenging.”

Chief Executive Ken Murphy vowed to work with suppliers to mitigate the impact of inflation as much as possible and support customers who are facing the most difficult economic conditions in decades.

Tesco, which has a share of more than 27% of Britain’s grocery market, and its nearest rival Sainsbury’s have previously warned of a hit to profits this year as they plow investment into keeping prices down to deter customers from going to cheaper discount groups.

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Murphy said the signs of pressure were building.

“Although difficult to separate from the significant impact of lapping last year’s (COVID) lockdowns, we are seeing some early indications of changing customer behavior as a result of the inflationary environment,” he said.

Reporting first-quarter results, Tesco maintained its full-year profit guidance despite reporting a 1.5% drop in underlying sales, broadly in line with analysts’ forecasts. They had fallen 1.2% in the previous quarter.

Pessimism weighing on Britain’s households has hit unprecedented levels, as wages struggle to keep pace with inflation that reached 9% in April and is heading for double digits. Food inflation is predicted to hit 15% this summer.

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The Bank of England stuck to its gradual increases in interest rates on Thursday but said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation it now sees topping 11%.

A raft of industry data shows that consumers are cutting spending by canceling music and TV subscriptions, removing more expensive meat and fish from the shopping list and making fewer car journeys in response to the rising cost of petrol.

Tesco’s shares have fallen 14% so far this year but most analysts consider it best placed amongst Britain’s major supermarket groups to navigate the downturn due to its buying power.

Monthly industry data has shown Tesco consistently outperforming its three biggest rivals, Sainsbury’s, Asda and Morrisons, on a sales value basis, and winning market share.

It maintained its profit guidance for the full year – retail adjusted operating profit of between 2.4 billion pounds and 2.6 billion pounds ($2.95-$3.20 billion), down from 2.65 billion pounds made in 2021-22.

Tesco shares were down 0.4% at 0710 GMT. (Reporting by James Davey; Editing by Kate Holton)

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