Despite posting its highest market share in nearly a decade, Tesco, the UK’s largest grocery chain, has said it expects to make less in profit in the year ahead as the UK supermarket price war continues to heat up.

“Our continued focus on value and quality, coupled with market-leading availability, has contributed to another year of increased customer satisfaction and our highest market share for nearly a decade,” said CEO, Ken Murphy. “We have invested in bringing great prices to our customers throughout the year and continued to innovate.”

“Firepower” as supermarket price wars heat up

Lowering its profit guidance, Tesco adjusted its operating profit for FY25/26 to between £2.7-£3billion, saying the revision would give it the “flexibility and firepower” to respond to current market conditions, having noted what it described as an “increase in the competitive intensity” within the UK grocery sector.

In March, Executive Chairman of Asda, Allan Leighton, had fuelled the possibility of a full-blown price war, announcing Asda was planning its biggest price cuts in 25 years, and saying that there was a “war chest” available that would allow Asda to “materially” forego profits in the short-term to win back market share. This, alongside continued pricing pressures from discounters Aldi and Lidi, against whom the Big Four are price-matching, has escalated the focus on pricing competition within the grocery sector.

“Building on our strong financial performance, robust balance sheet and positive momentum, we are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market,” Murphy continued.

Magnetic value for customers

Creating “magnetic value” for customers is one of the strategic focuses for Tesco for FY25/26, as it outlined in its Preliminary Results earlier today (10 Apr). It plans to deliver a “winning value combination” of Aldi Price Match on over 600 lines, Low Everyday Prices on 1,000+ lines and around 8,000 Clubcard Prices deals each week. It said its Clubcard Prices help save customers up to £392 off their annual grocery bills.

“Despite inflationary headwinds, we are committed to ensuring customers get the best possible value by shopping at Tesco, and see further opportunities to strengthen our competitiveness.”

Ken Murphy, CEO, Tesco

Competitive advantage via powerful digital capabilities

Celebrating 30-years of Tesco Clubcard, it plans to reach its 23million+ Clubcard members with new campaigns in the coming year, including 10,000 bonus points for customers who use Clubcard vouchers when booking with easyJet Holidays.

“We are also making significant progress on our long-term growth opportunities, further enhancing our digital capabilities with increased personalisation, further improvements to our online experience and an expanded retail media offering,” Murphy explained.

Last year, the supermarket invested in its Tesco Media and Insight Platform, with over 5,000 digital in-store screens, with its retail media offering reaching £1.56billion in the first half of 2024.

£500m cost savings earmarked in Save to Invest scheme

Having delivered an estimated £510million of cost savings in FY24/25, Tesco also said it would seek to create a further £500million in costs savings this financial year. It plans to extend its Save to Invest programme to help offset new operating cost inflation, including the impact of NIC rises.

Some of this would be driven by greater automation, with new robotics already implemented at its Peterborough distribution centre (DC) and a semi-automated DC in Aylesford due to open mid-year. It also plans to target Loss Prevention, with security system enhancements at checkouts planned in the coming year.