Tesco has reported a 10% drop in operating profit to £1.25bn for the first half of the year as shoppers look for ways to make their money go further.
Group sales for the six months to the end of August were up 3.5% at constant rates, with Tesco reporting sales growth across all segments following on from a strong performance throughout the pandemic.
The UK’s biggest supermarket chain said that customers were switching to cheaper own label products and from fresh to frozen food, and buying fewer non-food products. People are also shopping more frequently, with smaller basket sizes and shopping online less.
Tesco warned that its earnings for the full year would be at the lower end of earlier guidance. It now expects full-year adjusted operating profit to be between £2.4bn and £2.5bn.
Cost inflation remains significant in the second half of the year, said chief executive Ken Murphy, adding that it is “too early to predict how customers will adapt to ongoing changes in the market”.
Tesco faces competition from discounters such as Aldi and Lidl, which have seen customer numbers rise over the past few months.
The cost of living is increasing at its fastest rate for nearly 40 years, driven by rising prices for food and energy.
Murphy said that Tesco is putting up prices “a little bit less and a little bit later” than its competitors as household budgets are squeezed.
The retailer will also freeze prices on more than 1,000 everyday products until next year.
