Tesco battles through the 'headwinds'

The UK's biggest supermarket today said it racked up a 10 per cent rise in first-half profits despite the "powerful economic headwinds" facing the business.

Tesco, which has lost ground to discounters as hard-pressed shoppers look to cut food bills, said UK like-for-like sales rose 4 per cent excluding fuel during the second quarter.

This month it fought back with a new campaign as "Britain's Biggest Discounter", slashing costs on hundreds of items and launching 350 new products.

It said the customer response so far to the biggest overhaul in its grocery ranges for a decade was "very pleasing".

Underlying pre-tax profits for the six months to August 23 were £1.45 billion, in line with market expectations.

Chief executive Sir Terry Leahy said: "Tesco is at its best in tough markets - responding to the changing needs of customers - and that's why we have been able to make good progress this year, despite facing into powerful economic headwinds."

In the UK, the group - which has 20 million customers a week - saw evidence of shoppers feeling the squeeze of rising living costs trading down, affecting sales of its "Finest" and organic ranges.

Higher food product prices have heaped the pressure on supermarkets across the board, although Tesco hinted at some relief ahead for shoppers with inflation expected to subside slightly in the second half.

But signs of the retail giant's determination to push back against low-budget rivals like Aldi and Lidl encroaching on its dominant market position were shown in the strong start for its new discount range.

"Based on the first week's sales, if we carry that on it will be bigger than Aldi in the UK," finance director Andrew Higginson said. Aldi currently has a UK share of around 5 per cent.

The group's overall UK sales rose 10 per cent to a mammoth £20.1 billion during the first half. Non-food growth slowed in the tougher economic conditions, although some categories did better as shoppers stayed in more - with Sex and the City DVDs flying off the shelves.

International sales rose almost 27 per cent to £7.98 billion overall as the group unveiled the first figures from its foray into the US market, Fresh & Easy.

The venture posted trading losses of £60 million but these are in line with Tesco's expectations as the chain is currently dealing with high overheads and trading from relatively new stores.

Tesco has around 440,000 staff worldwide, with 280,000 in the UK. The group has more than 2,100 stores in the UK and over 3,700 in total.