According to a statement on Friday, the UK-based supermarket chain reported a greater than expected 1.5 percent decline in similar UK sales in the first quarter, even while total group sales rose to 2 percent.
The Chief Executive Officer of Tesco, Ken Murphy, said that Tesco is seeing some early indications of changing customer behaviour as a result of the inflationary environment in fresh evidence of how shoppers are battling to cope with the highest inflation rate in 40 years.
Tesco’s online sales were affected as shoppers resumed back to the supermarkets, while the general merchandise and clothing sales, such as home furnishings and toys were most affected. The company said the decline in the volume of goods sold was partly due to the onset of inflation.
Sales in the Republic of Ireland were down by 2.4 percent but were up to about 2 percent overall because of the strong growing sales in central Europe and at its wholesale chain, Booker.
Shares in Tesco fell marginally in early trading in London
The retailer who also owns wholesaler Booker, advised that in April this year the company’s profits will be squeezed as the company tries to keep prices low for consumers and supply-chain disruptions weigh substantially. It’s a shift in sentiment from the pandemic when Tesco benefited from more people eating at home and shopping online, from which the retailer raised its profit estimates twice in the last financial year.
Tesco’s total retail adjusted operating profit amounted to GBP2.6billion, which is up by 34.9 percent at an actual rate from the previous financial year, while its adjusted diluted (EPS) rose by 88.8 percent to 21.86.
Murphy said that Tesco is keeping a laser focus on keeping prices low for buyers, and are working with the suppliers to mitigate the rising prices as much as possible. He added that although the number of shoppers shifting from branded products to private label goods is still relatively small at the moment, it could start to increase during the summer. Early signs of customers switching to store-brand varieties of pasta, bread and beans were examples of items where prices have risen the most.
Murphy stated said that inflation is real for every part of the community, customers, colleagues and suppliers where it is being passed on ensuring inflation is a little bit less and a little bit later than the rest of the market.
Earlier during the year, Tesco’s chairman John Allan said that cash-strapped shoppers are asking the grocer’s checkout staff to stop when they reach GBP40 (USD49) before arranging the rest of their merchandise back onto the shelves. Similarly, rival supermarkets have also noticed changing consumer habits as people try to balance their monthly bills. The managing director of Iceland Foods, Richard Walker told reporters that he believed some of its poorer customers are switching to food banks to make ends meet.
Tesco controls the UK grocery market with a 27 percent share, matching its prices with the German discounter Aldi across more than 600 basic items that range from teabags to bananas.
The retailer plans to save about GBP1 billion over three years by simplifying the business. As part of this, Tesco already cut 1600 jobs earlier this year by revamping its store operations overnight. Tesco closed its Jack’s discount chain recently less than four years after it was launched. The discount chain was created to win back consumers from Aldi and Lidl.
This year the company’s shares have fallen 14 percent so far.
Earlier during the week, official figures showed that the spending power of UK households fell the most in at least 21 years as wage surges were propped by the fastest growing inflation in decades.