Tesco has said it plans to slash a further £500m in costs, as the supermarket chain tries to cushion the blow of Rachel Reeves’s tax increases and invest in fighting a price war with rivals.
Britain’s biggest grocery retailer said on Thursday it was deepening an existing drive to cut costs to help offset higher operating costs, as well as the £235m increase in its national insurance contributions (NICs) as a result of changes made by the chancellor.
The retailer made the cost cuts announcement as it reported a fall in annual profits, and said profits would be lower this year as a fight for shoppers with rivals intensifies. The update sent shares falling sharply, despite a rise in the wider FTSE 100 in response to Donald Trump’s tariff U-turn.
Tesco was among retailers to have warned that the rise in employer NICs – announced in Reeves’s autumn budget – would lead to job cuts and higher prices.
The British Retail Consortium has estimated that retailers are facing a combined £2.3bn bill from the increase in employer NICs from 13.8% to 15%, as well as the reduction in the earnings threshold that they must start paying it from £9,100 to £5,000. Those changes came into force this month.
Asked whether the cost-cutting measures would put jobs at risk, the Tesco chief executive, Ken Murphy, said: “We’ve ended this financial year with more people than we started the year. So I think we’re using those savings to drive growth.
“That growth has come, and that’s allowed us to grow the business and provide more opportunities. We never rule out job cuts. It will be naive to do that, but at the same time, I think our track record speaks for itself.”
Tesco said it had already slashed £510m worth of costs last year.
The retailer said it was forecasting lower profit for the year amid a growing price war with rival supermarkets. It said annual adjusted operating profit was now expected to come in between £2.7bn and £3bn, lower than the £3.1bn reported for the last financial year.
Tesco’s latest earnings results showed pre-tax profits fell 3.2% to £2.2bn in the year to February. However, it reported bumper sales, up 3.5% to £63.6bn, and said it had increased its market share across the UK to 28.3%, its highest point since 2016.
Britain’s supermarkets have been engaged in the early stages of a price war that has already wiped billions off their stock market values in recent months.
It came after comments by the Asda chair, Allan Leighton, who in March promised the company’s biggest price cuts for 25 years to make it more competitive.
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On Thursday, Tesco shares fell 6%, while the listed rivals Sainsbury’s and Marks & Spencer were off 4% and 2% respectively.
Murphy said Tesco was not expecting a major hit from international tariffs that Trump’s administration in the US had introduced on foreign imports. “We continue to make our own preparations, and we don’t believe that the impacts of the tariffs are significant at this stage for the Tesco business.”
While there has been speculation over potential knock-on effects on global shipping, the chief executive said Tesco’s UK-focused supply chain would help shield the supermarket from most disruption. “We’ve seen no impact for now,” he said. “The majority of our product comes from UK suppliers, and we’re coming into a season where that increases.”
Only 7% of Tesco’s products are non-food, he said. “Therefore [there is a] relatively small impact for Tesco.
“Things are moving very quickly, and it’s very hard to figure what that means. So I think that we’ll continue to watch it very closely.”
