On a day that Tesco delivered the results of its “biggest ever Christmas”, chief executive Ken Murphy and chief financial officer Imran Nawaz spoke to the press about how customers behaved during the busy festive period, and how the grocery giant will deal with mounting costs.
Could we get some colour on shopper sentiment over Christmas – were customers trading up to your premium ranges, or were they still seeking value?
“They were doing a bit of both, to be honest. So, we had a very, very strong value proposition this Christmas, and it really helped, because we did notice that customers were spreading their spend probably more than they have in previous years.
“So, we saw a lot of early buyers into some of the big purchases. Frozen turkeys were up quite significantly this year. Our main joints, which we launched early this year showed very strong growth. You could see people managing their spend over the period.
“Now, in addition to that, we also saw a 15.5% growth in our Tesco Finest offer, and that was a real testament to the fact that they love the innovation we put into the brand, but they were also willing to trade up to the Finest proposition over Christmas.”
The BRC has warned that food inflation is likely to creep back up to above 4% because of budget measures. Is that the sort of impact you’re expecting and, if so, does Tesco have any plans to put prices up to offset wage costs?
Ken Murphy: “Well, we’ve been the cheapest of the full-line grocers for two years, and that’s been an ambition that’s underpinned the success we’ve had in terms of the market share growth. So our focus will be on making sure we’ve got the best value proposition for customers out there, and holding back inflation as much as we can.”
Imran Nawaz: “We’re looking into all the areas, buying better by our procurement organisation, logistics, think-on-freight, waste reduction, and our end-to-end supply chain. So, we are looking into all the key areas where costs can be more efficient, where the business can run better and continue to focus our people on growth initiatives. We’re feeling good and confident about the ability to continue to drive a successful safety in this program.”
What are the costs that Tesco is going to face in terms of the national insurance contributions and minimum wage rises? Will the rises also see Tesco hire fewer staff in 2025?
“In terms of the impact of the national insurance rises specifically, we’re looking roughly at an extra added cost of a quarter of a billion pounds a year. In terms of the specific wage rises we’re likely to see, we’ve obviously just started our negotiations with our partners, and so those won’t get finalised for another couple of months.
“On the other point, we need to look at a couple of things that pertain particularly to Tesco as opposed to the wider environment. This year we’ve seen a headline rate of inflation above 3% from Kantar – our rate of inflation in Tesco was considerably lower than that.
“Also, we’ve had four years of really strong efficiency programs, but at the same time we’ve had more people in the business on the shop floor this year than we did this time last year. That’s a great indicator of our commitment – from value, to looking after our people”.
Tesco has entered the year with momentum, but how do you think the typical UK consumer is feeling heading into 2025?
“This country has faced numerous challenges over the last four or five years. There’s been a series of different external factors and variables that have worried consumers. We’ve seen a steady improvement in consumer sentiment over the last 12 months as inflation has moderated quite dramatically and is now operating with historical norms.
Consumers right now, from a grocery perspective, have a balanced sentiment. They really celebrated over Christmas. They really looked after and treated themselves, trading up into Finest and so on.
“We fully expect them to come into January being more value and more healthcare-focused as they always have done typically in the start of a new year. There’s no doubt though, looking around at the political environment and the geopolitical environment internationally, that there’s plenty of things for people to think about”.
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