Tesco, the UK’s largest supermarket and responsible for more than 25% of all food purchases in our country, will unveil its annual financial report on Thursday, shedding light on a market that is rapidly changing.
Tesco’s sales are expected to increase by almost 5%, to just over £69bn. The company is gaining market shares as consumers continue to look for bargains and household bills remain under pressure.
Under Ken Murphy’s leadership, the group has increased its service and price-competitiveness. It used its size and balance sheet strength to absorb some of the inflationary effects and its Clubcard loyalty program to fight off discounters Aldi and.
According to City analysts the group, which has supermarkets also in Ireland and Central Europe, will likely report underlying profit of £2.3bn. This is up from £2.1bn just last year.
Matthew Barnes, the former UK Aldi boss who replaced Jason Tarry on 1 March as Tesco’s UK head, is its new line of defense. On Thursday, he is expected to make his debut in front of City analysts.
He could offer some insight into how Tesco can maintain its competitive edge. Tesco’s Clubcard Prices, which provides special discounts for loyalty card holders, has been widely replicated. But the company also faces an expensive redesign after losing a court battle against Lidl over the use of a similar yellow blob to Lidl’s logo.
The impressive figures of sales and profits may also begin to raise new questions about the group’s power in the UK food industry. It also owns Tesco Express and One Stop, a convenience store chain. Booker is the UK’s largest grocery wholesaler and controls thousands of smaller Premier and Londis stores.
The UK competition watchdog is already examining whether loyalty card discounts – including Tesco’s and Sainsbury’s Nectar Price – are having a negative effect on the grocery industry.
The Competition and Markets Authority has also been asked to re-examine whether Tesco’s ownership of Booker is detrimental to the thousands of rural small businesses who have no choice but to work with this wholesaler.
The UK grocery industry is at a critical point. After over a year with high inflation, food prices are now rising at a slower pace. Since wage inflation caught up to price increases, shoppers are buying more groceries and choosing more expensive products.
This could be a good thing for Tesco, Sainsbury’s, and Marks & Spencer. All of them have seen sales increase. This could be a good thing for Morrisons, Waitrose and the new turnaround that is happening. Some may not be happy with the news.
Inflation may have made it difficult to negotiate with suppliers, keep costs down and limit price increases to hold on to customers in the face of intense competition. However, rising food prices ensured impressive-looking sales figures for many.
Sales figures are now starting to decline, exposing businesses like Asda, Co-op, and Aldi that are still struggling to attract shoppers, while also fighting rising costs and high rates of interest.
Clive Black is an analyst with Shore Capital. He says that those who have falling volumes and increasing costs could suffer. “We expect the sales numbers will be lower in the near future than what they were the past two years.”
The UK’s minimum wage has risen by nearly 10%, and business rates have increased. In addition, the cost of some commodities such as wheat, cocoa, and seed oil continues to rise.
As farmers struggle to plant and harvest crops, they may also face shortages and higher prices due to the ongoing problems in the Red Sea.
Tesco’s size may insulate it against these problems, but it makes it vulnerable to attack