By Scott Wright
BRITAIN’S biggest supermarket has flagged “early indications of changing customer behaviour” amid the deepening cost-of-living crisis.
Tesco acknowledged yesterday that surging inflation was starting to influence consumer buying patterns, with chief executive Ken Murphy declaring that shoppers are “facing unprecedented increases in the cost of living”.
It came as Tesco reported that group retail like-for-like sales, which take in operations in the UK, the Republic of Ireland and Central Europe, had grown by two per cent to £13.6 billion for the 13 weeks ended May 28, compared with the same period last year. Like-for-like sales were 9.9% ahead of the same period in 2019, before the pandemic.
Tesco said UK like-for-like retail sales dipped by 1.5% over the period to £9.9bn, though the grocer reported that it had grown market share, with overall distribution of Aldi Price Match and Low Everyday Prices products up by around 19% year-on-year.
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Mr Murphy said: “Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market. Our material and ongoing investment in the powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices is removing the need for customers to shop elsewhere.
“Although difficult to separate from the significant impact of lapping last year’s lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible. ”
The comments from Mr Murphy illustrate the extent of the squeeze currently being felt by households in the UK. Annual UK consumer prices index inflation increased to nine per cent in April – its highest level in four decades – amid surging household fuel bills, and is forecast to reach 11% . In response to soaring inflation, the Bank of England this week increased interest rates by a further 0.25 percentage points to 1.25%, raising borrowing costs for people with tracker mortgages.
A survey commissioned by the BBC, published yesterday, revealed that people struggling to make ends meet are cutting back on food and car journeys. More than half (56%) of the 4,011 surveyed said they had bought fewer groceries and around the same amount said they had skipped meals. The survey found people have cut back on socialising and buying clothes, with some saying concern over money was affecting their mental health.
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John Moore, senior investment manager at Brewin Dolphin, said: “While Tesco has reported robust results this morning and a return to pre-pandemic performance, there are signs of difficulties ahead. Food price inflation is starting to impact consumer behaviour and the head-to-head approach the company has with Aldi and Lidl is likely to put pressure on Tesco to take some of the pain on prices at least in the short term.
“Added to this, just recently we saw Tesco announce wage increases that would bring hourly rates in line with Aldi and Lidl – which, until that point, had been the UK’s highest-paying supermarkets. The combination of pricing pressure and higher staff costs make the profitability environment challenging. That said, Tesco enters this period in good shape, it has been working to be lean and more focused on its core offering and has a strong balance sheet to see it through the present difficulties.”
Tesco reported that its Booker wholesale arm had seen a “strong” jump in trading as it continued its recovery following the impact of pandemic restrictions on the hospitality sector.
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Fuel sales soared by 44% to £2bn amid the surge in petrol and diesel prices.
Mr Murphy cautioned that he did not expect pressure on fuel prices to ease and stressed that the supermarket should not be seen by customers as a profiteer from recent increases.
“When the Government passed the through the fuel duty changes, we passed that onto customers the same day,” he said.
“There are no signs of relief in prices in the short-term. We lack visibility and so much of the pricing is still linked to the situation in Ukraine.”
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