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Grocery store collapses as Tesco warns cost-of-living crisis will hit profits


Supermarket Shares tumbled yesterday as Tesco warned the cost of living crisis will hit the company’s profits next year.

The UK’s largest grocer has caused waves in the industry, saying soaring inflation, a return to pre-pandemic shopping habits and a fierce price war will pay off.

The supermarket reported a threefold increase in profits last year at £2.03 billion, after reducing costs related to Covid.

Fighting: Tesco boss Ken Murphy says soaring inflation, a return to pre-pandemic shopping habits and a fierce price war will pay off

Fighting: Tesco boss Ken Murphy says soaring inflation, a return to pre-pandemic shopping habits and a fierce price war will pay off

But it was guidance for next year that caught investors off guard when Tesco warned profits in 2022 would be between £2.4 billion and £2.6 billion – well below forecasts of £2.8 billion. .

The bleak outlook sent shares of all listed grocery retailers plunging, and just a week after Morrisons, now owned by private equity firm Clayton, Dubilier & Rice, warned that business Their numbers and profits will be affected by geopolitical pressures and inflation.

Tesco shares fell 2%, or 5.4 points, to 265.2 points yesterday and Sainsbury’s shares lost 2.5%, or 6 points, to close at 238.6.

At the same time, shares in Marks and Spencer fell 2.1%, or 3.25p, to 150.1p and shares of Ocado fell 2.6%, or 31p, to 1153.5p.

Shore Capital retail analyst Clive Black downgraded his recommendation for Tesco from ‘buy’ to ‘hold’, adding that if the supermarket caught a cold, he would expect others to catch the ‘flu’. ‘.

The update comes as shoppers face a squeeze on the cost of living, with wage growth failing to keep pace with inflation and soaring energy bills.

Tesco chief executive Ken Murphy said: ‘Clearly, the external environment has become more challenging in recent months.

Amid difficult times for our customers and with household budgets under pressure, we are focusing on keeping our store costs under control on a weekly basis. ‘

Tesco is the largest supermarket in the UK, with a 27.4% market share, 4,000 stores in the UK and Ireland and over 360,000 employees.

It has been using its massive scale to reduce prices for its customers. The retailer said last year prices fell 0.6 percent and it pledged to stay low next year. Murphy added: ‘We’ve been working hard to contain the impact of that inflation.

As such, our policy and strategy is to raise prices a little less and later than the market and do our best to manage the impact of those price pressures on our customers. ‘

But the supermarket giant is still fighting as it also faces stiff competition from German discount chains Lidl and Aldi – both of which promise to be the cheapest groceries.

Murphy says his company will be partnering with Aldi on over 650 products and is also offering low prices on thousands of home and beauty items to keep its customers away from ‘Home Bargains or B&M’.

Yesterday, AJ Bell financial analyst Danni Hewson said: ‘The supermarket has worked extremely hard on its plan to fend off competition from discounters Aldi and Lidl.

‘Tesco has worked hard to reduce prices and it’s also engaged in more promotions to encourage people to shop at its stores.

‘The coming months will be challenging for Tesco as it faces higher cost inflation and a potential shift in how consumers spend their money.

“There is a real risk that cash-strapped families will cut back on their purchases and if this trend plays out as expected, Tesco will not only feel the pain.”



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