Monday 25 June 2018

Tesco turnaround despite rising prices and squeezed spending

A commitment to minimise price rises and a revamp of products have paid dividends for the UK’s biggest supermarket.

Tesco posted a jump in profits (Chris Ison/PA)
Tesco posted a jump in profits (Chris Ison/PA)

By Josie Clarke, Press Association Consumer Affairs Correspondent

Tesco’s profits have soared as its turnaround continues despite rising food prices and a squeeze on household spending.

Boss Dave Lewis has hailed a year of “strong progress” after more than two straight years of rising sales and the completion of its £3.7 billion Booker deal.

Tesco’s performance has gradually improved since 2015, when it reported the worst results in its history with a record pre-tax loss of £6.4 billion.

It has faced fierce competition from the German discounters Aldi and Lidl and it was fined £129 million last year for overstating its profits in 2014.

Supermarket share figures from Kantar Worldpanel last week showed Tesco experienced a sales increase of 2.4% over the previous 12 weeks to hold market share steady at 27.6% – the first time it has held share since December 2016 – attracting an additional 262,000 customers through its doors.

Its full-year results acknowledged a tough retail market but showed shopper demand remained robust for food, with sales up 2.9% as it sought to keep a lid on price rises, partly by significant investment in the first half of the year to hold back inflation and protect customers.

Alongside a last resort approach to price rises, Tesco’s “Project Reset” revamp of the products it stocks has also met its aim of easing the customer experience and improving availability.

Last year it became the first retailer to offer same-day grocery delivery to customers across the UK, a step forward in serving those who have grown up with Amazon and expect the same from supermarkets.

Its efforts to help customers eat more healthily have also been well received, such as reformulating own-label products, highlighting “little swaps” for health in store, a focus on healthier eating via its Food Love Stories campaign and free fruit for children as they accompany parents round the aisles.

There have been missteps in the form of new contactless Clubcard key fobs which turned out not to be contactless, customer frustration at seeing their favourite brands disappear from shelves overnight and allegations that it misled customers with fake farm branding.

Richard Lim, chief executive at analysts Retail Economics, said Tesco’s “laser-like focus” on its core UK food business continued to deliver impressive gains.

He said: “With household budgets under pressure, the supermarket appears to have benefited from shoppers trading down to own-brand labels which deliver more sustained profitability.

“Meanwhile, online growth continued to outstrip all other formats as both coverage, the speed of delivery and average basket values improved.”

Press Association

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