Tesco has warned that profits could fall back in the year ahead, citing increased uncertainty caused by the conflict in the Middle East.
Ken Murphy, its chief executive, said that despite concerns about the impact of the closure of the strait of Hormuz on oil, gas and linked chemicals, the UK’s largest supermarket chain was “in good shape” on stocks of fuel for its petrol stations and distribution network.
He said Tesco was not currently seeing problems with the supply of food or groceries, or “meaningful” inflation except at the pump on its forecourts.
Murphy said he did not recognise predictions from the UK’s Food and Drink Federation that food inflation could hit 9% amid fears of shortages. “None of our growers, suppliers or manufacturers have flagged any supply issues,” he said.
But he admitted: “Ultimately it is an unpredictable situation. The scenario seems to change literally by the hour depending on the latest social media post of the American president.”
Murphy said Tesco would “do its best to minimise the impact on customers” and had demonstrated its ability to do so over the last six years of crises, from Covid to Brexit and the ensuing supply chain disruption.
He said the biggest recent challenge for food supply had come from storms in southern Spain and north Africa, which supply large amounts of fresh produce to the UK in the winter and early spring, but shoppers “didn’t really notice” as the company had secured supplies elsewhere.
However, he said: “Given how quickly the situation globally changes and the volatility of the actors involved, it would be wrong to give any guarantees.”
Tesco gave a warning over a potential drop in profits, which would be the first step back since 2023, after it hit its highest share of the market in a decade, topping 28%.
The UK’s biggest supermarket revealed profits rose by 8.5% to £2.4bn in the year to 28 February, as sales rose by 4.3% to £66.6bn, including strong growth in the UK.
It has paid shop floor, distribution workers and other frontline staff a £65m “special performance award” in light of the results, while shareholders have received £937m in dividends during the year.
However, the company said it had widened its guidance on profits for the year ahead to between £3bn and £3.3bn, adding: “Much will depend upon the duration of the conflict and in particular, the potential implications for UK households and the economy more broadly.”
Murphy said Tesco had won over more shoppers because “despite cost pressures from new regulation, we have increased our investments in keeping prices low, further improving quality and offering even better service”.
He said there had been an “increase in competitive intensity” in the UK, in the face of which Tesco had ensured more than 10,000 of its products were cheaper at the year end than at the start, despite grocery price inflation across the market.
Tesco aims to make £500m in new savings in the year ahead, which Murphy said would be ploughed into keeping prices down and improving product quality. The savings will include more use of AI in helping to work out when and how to mark down prices, as well as AI-led finance tools.
Murphy said the chain was “committed to doing whatever we can to help keep down the cost of the weekly shop, and with the conflict in the Middle East creating further uncertainty for consumers and the economy more broadly, that commitment matters more than ever”.
He said Tesco had not seen any meaningful changes in shoppers’ behaviour as a result of the conflict and households were still looking to eat more healthily and dine more at home.
Despite continuing pressures on household budgets, Tesco reported a 15% rise in sales of its Finest premium own-label range, an 11% increase in online grocery sales and a 51% jump in sales at Whoosh, its rapid home delivery service.
