Tesco claims its prices are rising slower than rivals’ as shares hit six-year low
Tesco has claimed it is raising prices “a little bit less and a little bit later” than its rivals, as it battles to hang on to customers squeezed by the cost of living crisis.
Shares in Britain's largest grocer dropped to their lowest level in six years after Tesco trimmed its profit forecasts for the year, blaming uncertainty about how customers will respond to mounting pressure on their finances.
It now expects adjusted retail profits to come in at between £2.4bn and £2.5bn, having previously suggested they could go as high as £2.6bn.
The company said it would freeze the price of more than 1,000 items until 2023 to support customers through the current crunch, forgoing some profits in favour of market share.
It comes as Tesco faces mounting pressure from discounters, with more and more people turning to names such as Aldi and Lidl in the face of rising bills.
Figures suggest Lidl is the fastest growing supermarket in the UK, while Aldi overtook Morrison's last month to become the fourth largest supermarket by market share.
Tesco chief executive Ken Murphy took aim at the lower-priced rivals, accusing them of “raising prices faster”.
Estimates from Bernstein previously suggest the price gap between the discounters and Tesco is around 15pc, but Mr Murphy said this had become "a lot tighter" in the past year.
"We don't disclose our pricing, but what I can really tell you is that since I've joined the business, we have progressively closed the gap [on pricing]. It isn't something that happened overnight, and it accelerated a little bit in the last month due to the rate of inflation in those discounters."
He added: "Our plan really is to be able to take away the worry that you're paying more in our shop for all those essentials that you can find in a limited range discounter, but also make sure you can get everything else you need."
The comments were met with a rebuttal from Aldi, which argued that it had the "smallest levels of price inflation in the market". The chain said a basket of goods at traditional supermarkets was, on average, 17pc more expensive.
Mr Murphy was speaking as Tesco posted a sales growth of 0.7pc in the first six months of the year, driven by higher demand for its own-brand goods and frozen food. Fuel sales jumped 39pc as prices for petrol and diesel surged.
However, pre-tax profits were down 64pc in the first half of the year, in part driven by a one-off charge, but also as Tesco battled rising costs for food and drink, increased staff wages, and discounting costs.
Shares in Tesco slumped by 3.76pc, hitting their lowest level since 2016.
Tesco said it was raising wages for a third time in 13 months, weeks after Lidl took a similar step. Pay for front-line staff is now up 8pc since the start of the year. Mr Murphy said: "We're trying to make sure that our colleagues don't have to go to food banks."
He warned that the festive period, typically the strongest quarter for retailers, could prove challenging for Tesco this year as cost-of-living pressures ramp up.
"We think it's going to be a Christmas that people are going to want to celebrate but clearly they're going to want to celebrate it in an affordable way."
This means Tesco is expecting "gifts this year will be smaller and to a tighter group within the family and friends unit". People are likely to opt for more "affordable" options, Mr Murphy said.
The update from Tesco caused a wider sell-off among grocery stocks, with Ocado the biggest faller on the FTSE 100, down 10pc and Sainsbury's dropping 4.7pc. On the FTSE 250, meanwhile, Marks & Spencer ended the day down 5.4pc, as investors were spooked by signs of mounting pressure on shoppers.
