On Friday, Britain’s biggest retailer said it was starting to see encouraging early signs that the country’s meteoric food inflation was easing, signaling some relief for squeezed shoppers and the broader economy. Tesco (TSCO.L), which has 27% of the country’s grocery market, reported a 9% rise in underlying quarterly UK sales as customers switched to cheaper own-brand products from big brands and as people focused on buying essential items ahead of more discretionary purchases.
The British economy is grappling with the highest level of consumer price inflation in the industrialized world. Inflation has risen as higher energy costs, locked-in increases in commodity prices, and increased staff wages have added to the cost of living. The high inflation also dents household incomes, as wages remain stagnant and mortgage rates rise.
Inflation is also eroding consumer confidence and is denting business investment. Britain’s Brexit vote to leave the European Union adds uncertainty about the economy’s future, and businesses are taking a wait-and-see approach to spend as they await a clearer picture of how Brexit will affect the economy.
But Tesco said there were now “encouraging early signs that the recent very high levels of inflation might be starting to ease.” It cited lower energy costs and a reduction in commodity prices. It added that it was continuing to push back supplier prices and absorbing the impact of rising staff wage inflation on its supply chain.
Nonetheless, the company warned that the inflation rate was likely to continue to be high over the medium term, and it urged the government to ease rules on imports to help make food more affordable. The company also reiterated it’s forecasted broadly flat retail adjusted operating profit this year.
Tesco chief executive Ken Murphy said that the group would keep up its efforts to cut costs, including through its management overhaul announced in January, which has already cut around 2,100 jobs. The group also attempts to reduce debt and plans to sell its banking arm.
But, Tesco said it will not “increase prices to offset rising energy, commodity and staff costs.” Over the last five years, it has already slashed the number of stores in the UK by nearly a third. But it aims to keep them open and to offer customers the same wide range of goods and services. It is also expanding its presence abroad and has a significant stake in the online grocery shopping site Booker. It has also diversified into fashion and financial services. Tesco has more than 500,000 employees worldwide. It is a publicly traded business and has a market capitalization of $14.8 billion. It is headquartered in the United Kingdom and operates in Europe, the Middle East, Asia, Africa, and Australia. Tescos main competitors include Wal-Mart, Home Depot, and Amazon.