Tesco warns on profits as supermarket price war emerges
Tesco has warned profits will fall this year, as Britain's markets supermarkets are forced to respond to a mounting price war.
Britain’s supermarkets have been engaged in the early stages of a price war that has already wiped billions off their stock market values in recent months.
Tesco currently has an 'Aldi Price Match' initiative, which sees the supermarket giant match the German discounter on over 500 products.
It told shareholders on Thursday it expects to see adjusted operating profit of between £2.7billion and £3billion, against £3.1billion in the most recent financial year.
The grocery giant said: 'In the last few months, we have seen a further increase in the competitive intensity of the UK market.
'We are committed to ensuring that customers get the best value in the market by shopping at Tesco and we see further opportunities to protect and strengthen our competitiveness.
'We are therefore providing guidance that gives us flexibility and firepower to be able to respond to current market conditions.'
Price war: Tesco forecast lower profits this year amid a mounting price war among Britain's major supermarkets
Tesco shares fell 3.88 per cent or 13.00p to 322.20p on Thursday, having risen over 8 per cent in the last year.
Dan Lane, lead analyst at Robinhood UK, said: 'Away from the US tariff backdrop, Tesco has a price war of its own to fight.
'The "Aldi price match" promo has been a hit and [Tesco chief executive] Ken Murphy will surely be readying a round of "Asda price match" now too.
'Lidl and Aldi have chipped away at Morrisons and Asda in particular - with Asda ready to flirt with some pyrrhic pain in the short term, it’s unlikely to overtake Tesco’s 28 per cent market share but denting it could well be on the cards.'
He added: 'Tesco’s drop in operating profit and lower outlook today won’t help just before another race to lower prices, though. Pricing pressures are clearly surfacing and might just get worse over the summer before they get better.'
Asda, Britain's third largest grocer, said last month it would take a hit to profit to finance a major campaign of price cuts - a move which contributed to Tesco's shares falling 11 per cent over the last month.
Tesco’s forecast came as it reported bumper sales for the most recent financial year, up 3.5 per cent to £63.6billion. Its pre-tax profit slipped 3.2 per cent to £2.2billion.
The supermarket chain said it boosted its market share across to 28.3 per cent, representing its highest point since 2016.
Tesco said there were more than 23million people in Britain with a Tesco Clubcard.
The big grocery retailers have complained of Budget tax hikes and increases in the minimum wage in recent months, which have made it more expensive to employ people.
The increase in employer national insurance payments will cost Tesco an additional £250million, while a 5.2 per cent pay increase for store workers will cost £180million.
Tesco also announced a further share buyback totalling £1.45billion to be completed by April 2026.
Tesco was one of a group of companies warning of price rises and inflation as a result of the announcement late last year.
In January, Tesco announced 400 job cuts across both stores and head office as part of plans to 'simplify' the business.
Chief executive Ken Murphy said on Thursday: 'Despite inflationary headwinds, we are committed to ensuring customers get the best possible value by shopping at Tesco, and see further opportunities to strengthen our competitiveness.'
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