Tesco Plc Chief Executive Officer Ken Murphy said he’s seeing signs that grocery inflation is starting to ease from its torrid pace as the UK’s largest grocer reported a sales gain fueled by higher prices.
Tesco has further increased its price match with discount rival Aldi to include around 700 products, Britain’s biggest supermarket said Friday. UK sales rose 9% in the grocer’s first quarter.
Supermarkets are under pressure to pass on price cuts to customers wherever possible as grocery inflation remains particularly elevated in the UK. Tesco stuck to its guidance that retail profit will hold broadly flat this year at around £2.5 billion ($3.2 billion), pledging that it’s trying to keep prices as low as possible.
The shares have gained 18% so far this year.
The UK government recently considered introducing voluntary price caps on groceries which was met with opposition from supermarkets. Marks & Spencer Group Plc chairman Archie Norman called the idea “harebrained” while Stuart Rose, chairman of Asda, said interventions would be “clumsy.”
Grocery price inflation has proved sticky with Office for National Statistics data last month putting it at 19%, close to the highest rate in more than 45 years. Food is emerging as a larger contribution to inflation than energy and supermarkets are tackling accusations that they are profiteering from higher prices.
There are some signs price increases are decelerating. Grocers have announced some price drops on key items such as milk, bread and butter. Last month Tesco extended its cuts to include pasta and cooking oils while J Sainsbury Plc’s reductions include toilet paper and more than 40 dairy products.
Like other rivals, Tesco is trying to shake off competition from the discount grocers Aldi and Lidl, which are gaining market share as shoppers seek more affordable food and drink. As well as ramping up the price match with Aldi, Tesco has increased the promotions offered through its Clubcard loyalty program.
(Updates with inflation comment in first paragraph)
