Cost-of -living crisis: Tesco makes price pledge amid 'changing shopper behaviour'

Tesco bosses have pointed to “early indications of changing customer behaviour” in a fresh sign of the pressures inflation-squeezed consumers are facing.

Ken Murphy, chief executive of Britain’s biggest retailer, highlighted “unprecedented increases” in the cost of living for customers as he committed to further improving value for money.

The comments came as the supermarket giant revealed that it continued to grow sales over the past quarter despite pressure on spending and tough comparisons against lockdown-boosted sales over the same period last year.

Like-for-like group sales rose by 2 per cent to £13.6 billion over the 13 weeks to March 28, compared with the same period last year. This represented a 9.9 per cent increase against pre-pandemic levels from 2019.

However, the group’s core UK operation noted that like-for-like sales dipped 1.5 per cent against the same period a year ago.

Tesco added that it has grown its market share against key grocery rivals after driving investment into value-focused promotional campaigns, such as its Aldi Price Match programme.

Murphy told investors: “Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market.

“Although difficult to separate from the significant impact of lapping last year's lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment.

Tesco said it was working with its supplier partners to mitigate as much inflation as possible. Picture: Andrew Milligan/PA Wire

“Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible.”

Earlier this week, the Scottish Retail Consortium said consumers were cutting back on discretionary spending and switching to cheaper brands as it emerged that sales on the high street fell back last month.

Matt Britzman, equity analyst at investment platform Hargreaves Lansdown, said: “After a slew of retailers warned on profits it’s encouraging to see Tesco keeping guidance unchanged. That’s not to say they’re immune to the current pressures. Back in April we heard consumer spending wasn’t showing signs of weakness yet, but it always felt like it was round the corner.

“Those cost pressures are now starting to take their toll and management called out changing behaviours today, that puts more emphasis on grocers offering a strong value proposition which is an area Tesco deliver well on.”

Alex Smith, global sector lead for retail research at Third Bridge, noted: “Tesco is attempting to be the last of the big UK supermarkets to pass on inflation costs to customers as it looks to gain market share and use its scale to manage costs. It is also expanding the number of lines in its successful Aldi price match campaign.

“Tesco’s market leadership gives it more bargaining power to negotiate down prices with suppliers. However, its relatively limited product range and fragile reputation means it can’t push negotiations too far.”

Tesco’s Booker wholesale arm witnessed a “strong” jump in trading as it continued its recovery following the impact of pandemic restrictions on the hospitality sector.

Meanwhile, fuel sales soared 44 per cent by value to some £2bn as Tesco witnessed a surge in petrol and diesel prices, which are now hovering close to 200p a litre.