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The boss of Tesco said UK consumers were “in good shape” ahead of Christmas despite a recent gloomy assessment of household morale, as the UK’s largest supermarket upgraded profits for the year.
Chief executive Ken Murphy said the company, which accounts for 27.8 per cent of the UK grocery market, tracked consumer sentiment every week “and while they’re not doing cartwheels down the hallways, [customers] are in reasonably good shape”.
He added that consumer sentiment had stabilised as inflation eased and there was a “willingness to spend a little bit more to treat themselves”, although he cautioned there was still “a lot of uncertainty in the world”.
Murphy’s comments stand in contrast to a sharp fall in consumer confidence in September in anticipation of the autumn Budget, according to the GfK consumer confidence index, a measure of how people view their personal finances and broader economic prospects.
They came as Tesco raised its forecast for annual retail adjusted operating profit, its preferred metric, to about £2.9bn, up from previous guidance of “at least £2.8bn” on Thursday.
Group sales rose 3.5 per cent to £31.5bn in the six months to August 24, while pre-tax profit was up 20 per cent to £1.4bn.
Murphy said Tesco was “in good shape, with volume growth delivering strong financial performance” as sales inflation returned to more “normalised levels”. Tesco said it cut prices on more than 2,850 products by an average of 9 per cent in the UK during the first half.
The supermarket chain has been using schemes such as Aldi Price Match and Clubcard Prices, as well as selling more of its upmarket Finest products, to help to increase sales and gain market share in a highly competitive UK grocery market.
The performance of private equity-owned rivals such as Asda and Morrisons has been lagging behind major groups such as Tesco and Sainsbury’s.
Murphy said that “even if there are one or two [chains] not where they would want to be, there’s always an intense competition”, adding: “Even those retailers are still very competitive day in, day out . . . So [the market is not] any less competitive.”
Sales were driven by volume rather than price, Tesco said, with retail like-for-like sales up 2.9 per cent during the period, although they were softer quarter on quarter and slightly below some analysts’ expectations of 3.3 per cent. Murphy said this was because of “a little bit of a lower than expected inflation rate”, which typically means smaller price rises and is ultimately good for customers.
Retail adjusted operating profit was up almost 10 per cent to just over £1.5bn, partly as a result of market share gains, while statutory operating profit was 13 per cent higher at £1.6bn.
Tesco’s focus now is to deliver “top-line growth, increase profit and generate cash”, the retailer said on Thursday.
Murphy did not comment on the ruling Labour party’s anticipated upgrade of UK workers’ right, but he said he was “very keen to make sure that whatever the government decides to put forward into legislation has the intended consequence of stimulating productivity, growth and protecting workers at the same time”.
Murphy said last month that Tesco was planning to vastly expand its application of artificial intelligence to customer data to attract more customers by personalising how they shop.
He told the Financial Times Future of Retail summit that the grocer could harness AI alongside data from its Clubcard loyalty discount scheme to suggest shoppers make healthier choices and reduce waste.
“I can see it nudging you over time, saying: ‘I’ve noticed over time in your shopping basket that your sodium salt content is 250 per cent of your daily recommended allowance. I would recommend you substitute this, this and this’,” he said.
