Tesco Plc Chief Executive Officer Ken Murphy said he’s seeing signs that grocery inflation is starting to ease from its torrid pace amid political pressure on UK grocers to hold down prices.
(Bloomberg) — Tesco Plc Chief Executive Officer Ken Murphy said he’s seeing signs that grocery inflation is starting to ease from its torrid pace amid political pressure on UK grocers to hold down prices.
Tesco recently cut prices on bread by 12%, while pasta and broccoli are both 16% cheaper, Murphy told reporters on a call Friday. Britain’s biggest supermarket has also expanded a price match with discount rival Aldi to include around 700 products.
Supermarkets are under pressure to pass on price cuts to customers wherever possible as grocery inflation remains particularly elevated in the UK. The UK government recently considered introducing voluntary price caps on groceries, which was met with opposition from supermarkets.
“Grocery retail in the UK is widely held up as one of the most fiercely competitive markets not just in the UK but across the world,” said Murphy on the call. “We think the internal competition mechanisms keep us very sharp.”
Murphy’s comments echo the sentiments of other supermarket leaders against the idea of price caps, and Prime Minister Rishi Sunak has reportedly abandoned the plans. Marks & Spencer Group Plc chairman Archie Norman called the idea “harebrained” while Stuart Rose, chairman of Asda, said interventions would be “clumsy.”
Tesco shares fell as much as 1.3% Friday, having gained 17% so far this year.
Proving Sticky
Grocery price inflation has proved sticky lately. Official data last month put it at 19%, close to the highest rate in more than 45 years. Food is emerging as a larger contribution to inflation than energy, and supermarkets are facing accusations that they are profiteering from higher prices. Tesco’s UK sales rose 9% in the first quarter.
“We are hopefully going to start to see prices continue to moderate through the rest of the year,” said Murphy on the call, dismissing the idea of profiteering. “We work very hard on behalf of the customer to hold back inflation.”
Still, “it’s unlikely that prices will return to where they were,” he warned.
Grocers have announced some price drops on key items such as milk, bread and butter. Last month Tesco extended its cuts to include pasta and cooking oils while J Sainsbury Plc’s reductions include toilet paper and more than 40 dairy products.
Cutting prices is unpredictable as certain areas like rice and potatoes recently spiked in price, Murphy said.
Like other rivals, Tesco is trying to shake off competition from the discount grocers Aldi and Lidl, which are gaining market share as shoppers seek more affordable food and drink. As well as ramping up the price match with Aldi, Tesco has increased promotions offered through its Clubcard loyalty program.
The grocer stuck to its guidance that retail profit will be flat this year at around £2.5 billion ($3.2 billion).
(Updates with CEO comments from fourth paragraph.)
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