Business

Tesco boss makes food inflation prediction as big retailers report Christmas progress

Tesco’s boss says he “thinks and hopes” food inflation, which stood at a record high in December, will start to ease in the second half of the year.

Ken Murphy was speaking after the UK’s largest retailer claimed it was the only one of the major supermarket chains to have grown its market share versus pre-pandemic levels over Christmas.

Tesco said it took business from rivals with the exception of the discounters Aldi and Lidl.

It reported a rise in like-for-like sales of 4.3% in its third financial quarter to 26 November – with a 7.2% hike being achieved in the six weeks to 7 January.

Grocery rival M&S said its like-for-like food sales were up by 6.3% on the same basis over the 13 weeks to 31 December.

M&S said its clothing and home offering – long a drag on the group’s performance – enjoyed its highest market share for seven years, with sales up by 8.6%.

Both Tesco and M&S, however, maintained their annual profit guidance.

One big name to reveal Christmas trouble was online fashion retailer asos.

It reported a 3% fall in revenue during the four months to the end of December, driven by an 8% plunge in UK sales over the four weeks to Christmas.

It blamed weak consumer sentiment and earlier cut-off dates for Christmas deliveries due to delivery problems caused by the Royal Mail strikes.

FILE PHOTO: A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014. REUTERS/Suzanne Plunkett/File Photo
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Asos said sales plunged ahead of Christmas versus a strong comparison with the previous year

Halfords, the motoring and cycling chain, cut the range of its annual profit outlook to between £50m and £60m, from £65m to £75m.

It blamed soft demand for tyres and bikes. The company also warned that a failure to recruit enough skilled technicians at its auto-centres business would have an impact on the final quarter of its financial year.

The firms are the latest to report on their progress after a tough festive season for family budgets – squeezed by the energy-led cost of living crisis.

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Food inflation reaches record levels

The overall picture for retailers’ performance ahead of Thursday’s trading updates has been one of resilience, however, suggesting that shoppers were prepared to relax the purse strings for Christmas amid record food inflation above 13%, as measured by the British Retail Consortium.

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It has led retail groups to express caution over consumer demand for the months ahead.

While there is strong evidence to suggest supermarkets will win out at the expense of hospitality as more people opt to eat at home, pub chain Mitchells and Butlers reported that like for like sales in the 15 weeks to 7 January were up by more than 10%.

Financial analysts have also questioned the extent to which company profitability has risen in line with sales amid reports of targeted discounting, especially among the grocers.

While inflation has generally driven a surge in sales values in the company updates to date, retailers have given little away on their margins and growth in the volume of sales – the amount of goods sold.

That said, Sainsbury’s and JD Sports both adjusted upwards the guidance on their annual profit expectations on Wednesday.

Next and B&M did the same last week.

Another trend to have emerged over Christmas included a dive in online sales – possibly wholly explained by the impact of strikes at Royal Mail – with more visits to physical stores replacing some of that retail space.

Shares in both Tesco and asos opened 1.5% down while M&S stock fell by 2.6%.

Halfords suffered through a 12.8% plunge.

Commenting on Tesco’s sales figures, Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “For all the progress, there is an elephant in the room.

“A large proportion of success is coming down to discounting. Things like Aldi Price Match and price freezes are very successful tactics, but can spell bad news for margins.”

“Supermarkets had only recently rediscovered their footing before the pandemic, following years of margin degradation from an all-out price war.

“Soaring inflation and the pressure on customer spending power means history is repeating itself. The tug of war between pricing and volumes is clearly producing a good result, which is why profit expectations have been reiterated, but it’s still hardly an ideal state of affairs for the big names in industry.”

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