Tesco Plc is the latest grocer to reveal how higher costs and fierce competition are squeezing profits as cash-strapped shoppers hunt around for deals.
(Bloomberg) — Tesco Plc is the latest grocer to reveal how higher costs and fierce competition are squeezing profits as cash-strapped shoppers hunt around for deals.
Britain’s biggest supermarket said sales rose in the third quarter but it still kept profit guidance steady in a sign that the pressures of keeping food costs down in an inflationary environment are not easing yet. Tesco’s stock fell more than 1% in early trading in London.
Like its rivals, Tesco is fighting to keep shoppers loyal with high food prices increasingly pushing consumers to visit the German discounters Aldi and Lidl. The grocer is freezing prices on more than 1,000 products until April 10, extending a previous price lock which ran from October until the start of this year. Tesco already matches prices with Aldi across hundreds of basic items.
Read more: Aldi Has Record Christmas Sales as UK Shoppers Seek Discounts
Tesco is also having to invest in boosting employee pay. The grocer reduced its profit guidance in October, saying that retail adjusted operating profit will be between £2.4 billion ($2.9 billion) and £2.5 billion this year, lowering the upper range from £2.6 billion.
Group sales rose 7.9% in the Christmas period and Tesco said it was the only ‘full-line grocer’ to increase market share compared with the pre-pandemic period. Like for like UK sales rose 7.2% in the Christmas period.
Despite the strong performance, Tesco maintained guidance on earnings which could be seen as a more cautious outlook on margins, said William Woods, an analyst at Bernstein.
–With assistance from Lisa Pham.
(Updates with shares in second paragraph and more context from fifth graph.)
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