For the third time in a year, Tesco is raising shop employees’ wages. The British supermarket chain is also freezing the prices of over 1,000 products, but this has caused profits to plummet at the same time.
Private brands and frozen foods
In the six months ending in August, profit before tax fell by almost 64 % to 413 million pounds (470 million euros). However, sales rose 6.7 % to 32.5 billion pounds (37 billion euros). However, comparable growth in British supermarkets, the company’s core business, was limited to 0.7 % as UK consumers spent significantly less.
People are switching more to private labels and frozen foods due to the cost-of-living crisis, Tesco reports. For instance, sales of premium private label Finest actually increased by 13 % as consumers treat themselves with these rather than eating out. The food retailer also previously announced it was freezing the prices of more than 1,000 products, a move that is now being extended until 2023.
The second half of this year is not bringing much improvement. For the third time in a year, Tesco is raising employees’ wages: the basic hourly wage in shops will rise by 20 cents in mid-November, representing a total pay rise of 8 % this year. All those costs mean that Tesco is now counting on a retail profit of between 2.4 and 2.5 billion pounds for the full year, down from 2.7 billion pounds last year. The retailer nevertheless hopes to save another 500 million pounds this year, including by automating checkouts.
“Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all our stakeholders,” says CEO Ken Murphy. For instance, the retailer promises to halve food waste by 2025. Even executive salaries and bonuses will now be linked to sustainability targets.