Price pressures easing ‘substantially’ as profits jump, says Tesco

Tesco has said price pressures have eased “substantially” as the supermarket giant revealed a jump in profits.

However, the UK’s largest grocery firm said it still saw “sticky” inflation on popular items such as chocolate, potatoes and coffee.

Tesco also revealed it will hand out about £300 to each of its full-time workers in a “thank you” bonus following the bumper profits.

The retailer posted an adjusted operating profit of £2.83 billion for the year to February, up almost 13% on the previous year.

Meanwhile, reported pre-tax profits almost tripled to £2.3 billion from £882 million a year earlier, when it had been impacted by an almost £1 billion one-off impairment.

Unite general secretary Sharon Graham accused the firm of “raking in mountains of cash while families struggle to put food on the table because of sky high prices”.

The grocer said it saw demand grow from shoppers after investment to improve pricing, with about 4,000 price cuts over the past year.

Chief executive Ken Murphy said: “Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we’ve made to the value and quality of our products.

“Inflationary pressures have lessened substantially; however, we are conscious that things are still difficult for many customers, so we have worked hard to reduce prices and have now been the cheapest full-line grocer for well over a year.”

The company has been among grocers to invest heavily into price improvements amid strong competition from German discount brands Aldi and Lidl.

It has also benefited from a slowdown in wider food and drink inflation, with the latest industry data from Kantar showing this slowed to a new two-year low of 4.5% last month.

Mr Murphy said that Tesco is currently seeing inflation below this, as it benefits from its large buying power, but expects price rises to hold around their current level.

He said: “I see that stabilising, that kind of low single digit for the rest of the year is our planning assumption”.

The supermarket group also said on Wednesday that it would hand £70 million to about 220,000 workers, worth roughly £300 per worker, due to the “strong” performance.

Tesco reported that overall revenues excluding VAT rose by 4.4% to £68.2 billion for the year.

It said retail like-for-like sales grew by 6.8% for the year, as it benefited from a return to volume growth in the UK and Ireland in the second half of the year as easing price inflation led shoppers to buy more products.

This offset a 17.2% drop in fuel sales driven by falling petrol and diesel prices.

Julie Palmer, partner at Begbies Traynor, said: “This morning’s results point to a retailer that has the ability to not only navigate a tricky climate but also grow market share, despite stiff competition from the discounters.

“Clearly, the focus on delivering value for customers is paying off.

“Yet, Tesco, like every other retailer, will be assessing the impact of the minimum wage increase, which should be manageable for a retailer of this scale, but is yet another pressure to contend with in a volatile market.”