Tesco boss Ken Murphy has questioned the firepower of his supermarket rivals to sustain a New Year price war, saying they had issued “bold claims” but not backed them up with actions that moved the dial on the shelf.
Speaking today after Tesco revealed record Christmas sales, with like-for-like food sales over the six week period up 4.7% and market share the highest since 2016, Murphy vowed that Tesco would do all it could to “keep a lid” on inflation.
But he took a side swipe at the price cut campaigns of rivals, including that launched by struggling rival Asda last week, which has set out to recapture its “Asda price DNA.”
Asked by The Grocer if a price war was good for the industry given the cost pressures from the November budget and global economic events, Murphy said: “I think we’ve tried to look at a balanced approach because a price war per se doesn’t help, whilst clearly customers love value.
“But there have been a few bold announcements made in the press and I’m not sure that to me would constitute a price war just yet.”
Last week Asda announced price cuts across more than 2,500 household staples as new boss Allan Leighton bids to restore ‘Asda price’ as its winning mantra.
Its Big Jan Price Drop brought reductions of an average of 26% on products including in-store and online.
Morrisons meanwhile launched a big expansion of its discounter price-matching scheme with Aldi and Lidl to include 500 products.
However, Murphy said Tesco has now been the UK’s cheapest full-line grocer for over two years.
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Today, the Tesco boss faced a barrage of questions over the threat posed by inflation, including the prospect of brutal trading conditions between supermarkets and suppliers.
However, Murphy sought to strike a conciliatory tone with suppliers facing pressure on costs.
“We’ve been through momentous times with our suppliers,” he said.
“If you think about the impact of the pandemic on volumes and availability, and the supply chain crisis with shipping issues, and the cost of living crisis, and we’ve weathered all of those with our suppliers and emerged with an even stronger relationship.”
“As an organisation, we pride ourselves on building sustainable relations with our suppliers then looking after those relations because we want those suppliers to invest themselves in innovation, efficiency and cost reduction and streamlining the supply chain.
“We are a very analytical organisation and work very hard to understand our supply chain and what they do, but we are very fair and transparent and we take a long term view. It’s a very symbiotic relationship and one we cherish.”
Murphy said despite a lot of doom and gloom over inflation, he hoped some areas could see prices start to come down in 2025.
“CPIs are a fact of life and they come at different points for different reasons,” he told The Grocer.
“Clearly we’ve seen commodity cost inflation in areas like dairy cocoa and coffee in recent months and that has impacted prices.
“You’d hope maybe that if those commodities start to ease we could see some prices start to go the other way.
“Clearly the budget is going to increase the cost of doing business for everybody but our expectation is that suppliers will do their best to manage their cost base and that’s what we’ll be counting on them to do.”
Meanwhile Murphy called on the government to tackle the huge burden of business rates in a bid to ease the pain facing retailers from the economic situation.
And he also made clear Tesco will be pushing for ministers to agree to measures to reduce the impact of some of Defra’s flagship environmental programmes, notably Extended Producer Responsibility (EPR) and the Deposit Return Scheme (DRS).
Murphy said he hopes that the government would agree to “manage and mitigate” both schemes “to the greatest extent possible” in a bid to minimise the financial burden on retailers, suggesting that Tesco could call for delays to one or both of the schemes.
“We would like to work with the government on some of the environmental legislation coming down the track such as EPR and DRS that could have significant cost implications for the industry,” he said.
“We’re very supportive of the ambition of those initiatives but we want to make sure that the industry can absorb the costs over the right timeframe to try to keep a lid on inflation.”
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