Tesco fights to keep UK shoppers from discount grocery rivals amid cost of living crisis
Tesco said consumers “watching every penny” are still shopping at its stores amid intense competition from discount grocery rivals.
Britain’s biggest grocer reported better-than-expected sales in the first half and only slightly cut the top end of its profit guidance this fiscal year, even as costs rise as it tries to keep shelf prices low and increases staff pay.
The stock fell as much as 1.6% Wednesday morning.
Tesco is fighting to keep shopper loyalty as consumers in the UK decamp to cheaper rivals Aldi and Lidl.
The highest inflation in four decades and rising energy bills are piling pressure on consumers to save money on food. Tesco matches its prices with Aldi across hundreds of basic items that range from teabags to bananas to try to avoid losing market share to the discounter.
“Customers are increasingly concerned about household spending and are watching every penny to make ends meet,” CEO Ken Murphy said.
Tesco said its hourly workers will receive an extra 20 pence an hour taking the base rate of pay to £10.30 (€11.82) an hour to help ease the cost-of-living crisis for its staff. The grocer also raised its dividend and froze pricing on more than 1,000 products until 2023.
The grocer now expects retail adjusted operating profit will be between £2.4 billion and £2.5bn (€2.9bn) this year, lowering the upper range from £2.6bn (€3bn).
Tesco pointed to “significant uncertainties” in the trading environment, particularly consumer behaviour.
Rival Morrisons reported a 50% slump in adjusted earnings in the third quarter last week. Even Aldi, which is winning customers and growing its market share, has seen pre-tax profit slide more than 85% from the year before.
Tesco also said it’s trying to deliver its three-year savings goal 12 months early and reach £1bn (€1.1bn) of savings by February 2024. As part of this, Tesco already cut 1,600 jobs earlier this year by revamping how its stores operate overnight and shutting its discount chain Jack’s.
Tesco, which also owns wholesaler Booker, leads the UK grocery market with a 27% share and employs more than 360,000 people. The pay increase for staff at its UK stores comes on top or raises earlier in the year as inflation saps purchasing power.
The grocer is providing extra support to help employees through the cost-of-living crisis with an extended discount allowance, more access to working hours and free food in staff rooms.
The company’s shares have lost more than a quarter of their value this year.