Tesco said food inflation fell in the second half and added that it looked set to fall further in the coming months.
Releasing strong interim results, Tesco said it would “continue to lower prices wherever we can”.
The supermarket group raised its annual profit forecast on Wednesday after shoppers snapped up more items from the chain’s Finest range.
Food inflation falling: Tesco boss Ken Murphy said food inflation fell in the first half and will continue to fall in the coming months.
Tesco, which has a 27 per cent share of the UK grocery market, said its overall price increases are lower than overall rates.
That has helped boost market share, the group said, and it now expects retail’s adjusted operating profit in 2023/24, its preferred metric, to be between £2.6bn and £2.7bn. It had previously forecast around £2.5bn.
Ken Murphy, the group’s chief executive, said: “We know how challenging it is for many households across the country, as they continue to deal with ongoing cost of living pressures.”
“We are committed to doing everything we can to reduce food bills and Tesco is now consistently the cheapest full-line supermarket.”
And he added: ‘Food inflation fell during the semester and, although external pressures persist, we expect it to continue like this in the second half of the year.
“We are in a strong position to continue investing for customers and will continue to lower prices wherever we can, doing everything we can to ensure customers can have a fantastic and affordable Christmas shopping at Tesco.”
The group’s adjusted operating profit for the first half rose 13.9 per cent to around £1.5bn. Total revenues, excluding fuel, amounted to more than £34 billion during the period. Comparable sales in the UK rose 8.7 percent in the first half.
Statutory profits for the first half after tax grew to £929m, up from £252m last year, although this was hit by a £579m impairment charge which dragged the figure down .
UK food prices fell in September for the first time in more than two years on a month-on-month basis and the annual rate of food price inflation fell for the fifth consecutive month to 9.9 percent, contributed to underpinning an improvement in consumption. trust.
Strong results: Tesco raised its annual guidance amid strong first half results
Tesco, like most supermarkets, has cut prices on staple foods such as milk, pasta and vegetable oils in recent months as the costs of raw materials and other inputs have fallen, and competes with fast-growing German discount chains like Aldi matching the prices of their products. key elements.
It has also benefited from consumers entertaining at home rather than dining out, and from shoppers switching to it from more expensive grocery stores.
The group said: ‘Prices were reduced on around 2,500 products at the end of the half-year, from bread to broccoli, with an average saving of around 12 per cent. Clubcard prices on over 8,000 products across the store, saving customers up to £390 a year.’
tesco stock rose on Wednesday and was up 1.96 per cent or 5.10 pence at 264.70 pence this morning, after rising more than 24 per cent last year.
Regarding investor returns, the group said: “We continue to view the buyback program as an ongoing and critical driver of shareholder returns, reflecting the strength of our balance sheet and our confidence in generating strong cash flows. futures”.
The group said it remains on track to achieve savings of £600 million by the end of the year.
Richard Hunter, head of markets at Interactive Investor, said: “Tesco remains the rival to beat, tirelessly delivering value to both customers and shareholders.
‘Its drive to lower prices for customers is facilitated by its enormous scale and strength, falling food inflation and significant cost reduction. In turn, this creates something of a virtuous cycle, with more customers attracted to programs such as the group’s Aldi Price Match, Low Everyday Prices and Clubcard Prices.’
He added: ‘Stocks have also responded, despite increased pedestrian activity in recent months. Over the past year, the price has risen 24 per cent, compared with a 5.4 per cent gain for the FTSE100 overall, and appetite for the group’s offerings has apparently not waned for both investors and consumers.
“Therefore, there should not be much problem for the group’s long-standing position as a preferred player in the sector, as the market consensus on the stock remains a Strong Buy.”
Sue Davies, director of Which? food policy, said: ‘With many consumers still struggling to put food on the table, these results show that some supermarkets have done relatively well during the cost of living crisis.
“While we all want British businesses to do well, it’s clear they haven’t felt the pain in the way their customers have.”
Richard Lim, chief executive of Retail Economics, said: ‘These results are hugely impressive. Their relentless focus on value has delivered strong growth, while the significant rebound in profitability will be a focus.’
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.