The chief executive of Tesco has said food inflation has probably peaked but that prices are likely to stay high.
Ken Murphy, the head of the UK’s biggest supermarket chain, said the price of milk, bread, cooking oil and some vegetables such as broccoli had come down this month but inflation continued in other essentials, including rice and potatoes, as weather issues and locked-in increases in the price of labour and energy continued to bite.
A peak in annual food price inflation, currently at 19% according to the latest Office for National Statistics data, would not mean that prices overall would start to come down, just that they would rise more slowly.
Murphy urged the government to help tackle inflation by easing regulations linked to Brexit, which he said had had a “meaningful impact” on the cost of importing groceries into the UK from the EU and from Great Britain to Northern Ireland.
He also called on ministers to consider easing business rates, which he said had cost Tesco £700m last year and had doubled in the past 10 years while grocery sales were largely flat.
“We would really welcome help in a number of different areas in ways that could help reduce the cost to serve” customers, he said.
He also said price rises would continue to ease in the second half of the year, but that it was difficult to determine how long high levels of inflation would remain because costs were partly dependent on commodities and the cost of energy, on which long-term contracts continued to suggest prices would remain high.
“We hope we will start to see an easing of aspects of inflation that will help to moderate [it]. It is unlikely prices will return to where they were but wages are higher than they were and what’s important is the purchasing power of families,” he said.
At Tesco’s annual shareholder meeting on Friday, Murphy defended the company’s recent move to charge extra fees for suppliers selling goods via its online business. He said grocery producers had been trying to “push through price rises” on a regular basis in the past year or so, and that Tesco had “actively been trying to hold them back”.
“Most of the consumer goods companies in the world are now mega-companies and the idea of the large retailer and small supplier is a wrong assumption which is no longer a reality,” he said.
Inflation is causing serious problems across the UK, driving up costs for businesses and making everyday essentials more expensive for households , prompting them to rein in spending.
The building materials business Travis Perkins issued a profit warning on Friday, saying that rising mortgage rates and high inflation had led to home owners delaying projects such as extensions while the construction industry was holding back on building new homes. The company said annual profits were set to be £240m, £30m less than previously predicted.
Murphy said most shoppers were not experiencing the high levels of food inflation outlined in government statistics, because they were switching from big brands to cheaper own-label goods and from fresh to frozen. People were also buying treats from the supermarket for celebrations or to enjoy the warm weather, rather than dining out.
People are also buying less. The number of items bought in Tesco shops was down despite a 9% rise in UK sales in the three months to 27 May, with non-food items particularly hit until the sunny weather arrived.
Murphy said a near 10% rise in sales at Tesco’s large supermarkets was also linked to shoppers buying more in bulk and batch cooking two or three meals at once to save money.
The company also did well online, with sales up 8.2%, and said it was winning a share of the market from premium supermarkets such as Waitrose, Marks & Spencer and the online retailer Ocado.
Murphy said he did not believe a price cap on grocery essentials, an idea floated by the government last month and implemented in some countries including France, was needed in the UK. He also denied Tesco had been artificially holding up prices, pointing to its falling profit margins.
“Market forces mean that UK grocery retailers are consistently having to be the sharpest possible in terms of value,” he said.
Total sales for the group rose 8.2%, though Murphy said it had experienced challenging trading conditions in Hungary, where it operates a number of stores, after government support was scaled back. Trade at its Booker wholesale group, however, had experienced a bounceback in custom from cafes and restaurants, he added.
Commenting on the exit of the Tesco chair, John Allan, after the Guardian revealed allegations of inappropriate behaviour, Murphy said the board had “acted in the best interest” of Tesco and its staff” in agreeing to his departure.
“It was a difficult decision but coincides with the fact that a search for a new chairman was already well under way,” he said, adding that a permanent replacement for Allan would be announced in due course.
The Guardian reported last month that Allan had allegedly touched the bottom of a senior member of Tesco staff at the company’s AGM in June 2022.
At the time his departure from Tesco was announced, Allan said: “It is with regret that I am having to prematurely stand down from my position as chair of Tesco plc following the anonymous and unsubstantiated allegations made against me, as reported by the Guardian.
“These allegations are utterly baseless, as the internal procedures undertaken by Tesco prove. Tesco undertook an ‘extensive internal review’ which included inviting Tesco employees and ex-employees to come forward on an anonymous basis if they had concerns about my conduct.
“Tesco also conducted outreach to those who attended the meeting where the incident allegedly happened, and video footage of the meeting has also been reviewed. There is no evidence of any wrongdoing at that time or at any stage of my chairmanship at Tesco and I remain determined to prove my innocence.”
