Tesco has indicated a growing price war among UK supermarkets, with its chief executive, Ken Murphy, noting an "intensification" of competition and targeting up to £500 million in cost reductions.
Murphy highlighted increasing pressure to lower prices, following Asda's recent pledge to implement its most significant price cuts in 25 years.
Tesco anticipates a potential profit reduction of up to £400 million in the coming year due to what Murphy described as "a very competitive market".
The company said in a statement: “In the last few months, we have seen a further increase in the competitive intensity of the UK market.
“We are committed to ensuring that customers get the best value in the market by shopping at Tesco and we see further opportunities to protect and strengthen our competitiveness.”
The grocery giant said it expects to see adjusted operating profit of between £2.7 billion and £3.0 billion, compared with £3.1 billion in the most recent financial year.
The guidance “gives us flexibility and firepower” to respond to mounting competition among supermarkets, Mr Murphy said.
Britain’s major grocery chains have been engaged in the early stages of a price war that has already wiped billions off their share prices.
It comes after comments by Asda chairman Allan Leighton, who in March promised sweeping price cuts in a bid to make it more competitive.
Tesco also said it is looking to cut a further £500 million from its overheads to “help offset new operating cost inflation”, partly as a result of recent tax hikes for employers brought in by the Government.
The company warned of price rises and inflation as a result of an increase in employer national insurance contributions (Nics) late last year.
The company said that about £510 million in cost cuts last year had come from bringing in more automation in warehouses and improving supply chains, among other measures, and that it would continue with the same savings plan this year.
When asked if the savings drive could mean cutting jobs, Mr Murphy said: “We never rule that out, but at the same time, we have a track record of managing it very well.”
In January, it announced 400 job cuts across both stores and head office as part of plans to “simplify” the business.
Nonetheless, Tesco also reported bumper sales for the most recent financial year, up 3.5% to £63.6 billion.
And the supermarket said it increased its market share across the UK to 28.3%, its highest point since 2016.
Mr Murphy added: “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.”
Julie Palmer, a partner at consultant Begbies Traynor, said Tesco’s cautious profit guidance is “a stark reminder” of the competition facing supermarkets.
“Clearly, no retailer is immune from the turbulence of today’s economy,” she added.
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