On the day that Tesco posted surging profits and sales, its chief executive Ken Murphy gave his takes on a host of issues facing grocery and the retail sector.
In the 26 weeks to August 26, 2023, Tesco reported a 14% increase in adjusted operating profit to £1.3bn and an 8.9% jump in group sales to £30.75bn.
Murphy was understandably in high spirits as he presented the latest set of figures for the UK grocery giant, saying: “We’ve made a really good start to the year and, most importantly, we’re winning with customers.”
While Tesco continues to go from strength to strength, the wider macroeconomic and political situation remains fraught, and Murphy gave some insight into how he’s helping to navigate the supermarket giant through the turbulence.
Food inflation easing
On the issue that has dominated coverage of the grocery market for nearly the last two years, Murphy said that there’s now some light at the end of the inflationary tunnel.
“We’ve seen inflation come down progressively over the last six months, which gives you a clear indication that our suppliers are working closely with us to try and drive down costs.
“Where you’ve seen some of the more extreme cost increases over the last 18 months, such as dairy and pasta, is also where we’re starting to see costs come down more.”
While Murphy warned there are still a few areas – “chicken, meat and potatoes” – that continue to be inflationary, he notes that “on the whole, we’re seeing deflation, and we’re hoping that continues through the second half”.
Shoplifting and abuse
Another huge issue in retail this year has been the worsening incidents of retail crime. A survey of British Retail Consortium members found levels of shoplifting in 10 of the biggest cities had risen by an average of 27% in 2023.
However, Murphy said the biggest issue for Tesco staff has been the rise in incidents of abuse and violence against them.
“We believe it’s totally unacceptable that anybody should have to suffer any abuse, either verbal or physical, at work. And while it’s a relatively small number of incidents, it’s on the rise, up 30% year on year.”
Murphy was asked what he thought of comments made at the Conservative Party conference by MP Chris Philp, who encouraged people to take action themselves if they witnessed shoplifting.
“While I applaud the sentiment of the minister, we are clear with our colleagues and with customers that we would absolutely not want them to put themselves in harm’s way. We train our colleagues in that regard, and we’re very clear about that as a policy.”
Net zero U-turn
Murphy also reiterated that he would like to see the government stick to its previous net zero pledges, after prime minister Rishi Sunak rolled back a series of key decarbonisation policies in September.
“To the government, we’d say two things. We would say the affordability of sustainability is a challenge for everybody and therefore helping industry to invest in sustainability innovation is really important.
“The second thing I’d say is that getting regulation right is also super important.
“We learned from the District Regeneration Frameworks (DRF) situation in Scotland that involving industry early, designing the scheme together and getting it right the first time is enormously important.
“This will help us get to our sustainability goals as a country more affordably and quickly.”
Profits and profiteering
Back in June, representatives of the former big four supermarkets were dragged before the Commons business and trade select committee and grilled over whether they had been profiteering from food and fuel inflation.
This was ahead of a report from the Competition and Market Authority, which was published in July. The report found that while some supermarkets had a case to answer on their fuel pricing, the watchdog could find no evidence of profiteering on food.
While posting a profit as a grocer during the summer would have invited further unwanted political and public scrutiny, much has changed in three months.
Murphy said: “The CMA went through a very rigorous investigation and it concluded that there was no profiteering in the grocery sector. That, actually, grocery margins were either flat or falling across the pace.
“We’re the most competitive we’ve ever been from a value point of view, so we think that’s working for us. We’re winning market share, so we know it’s working for our customers. And we’re delivering a strong resilient financial performance.”
Chipper on Christmas
Murphy believes despite a year marked by extended periods of record inflation, “the customer is in good shape for this Christmas”.
He noted that he expects consumers to spread out their Christmas spending over a longer period of time to help with costs. They are also likely to trade down on certain products while treating themselves to others.
“Our sense is that our customers are a little more optimistic than they were this time last year. We’re kind of seeing that in the general sentiment numbers,” Murphy said.
“More broadly speaking, I think people are determined to enjoy Christmas this year. You know, we’re buying up on turkeys because we believe that customers will want to celebrate more together, spending more time with friends and family.”
No comments yet