Tesco wins the battle of the supermarkets – but are shoppers paying too high a price?

Britain’s biggest supermarket brought home the bacon (and the turkey) with a spike in sales over Christmas, writes James Moore. But as shoppers struggle with the cost of living, can bigger profits be justified?

Tesco has said its profits are set to surpass previous targets after strong Christmas sales (PA Wire)

Tesco gorged on festive treats over Christmas, putting on millions of pounds in the process.

The country’s biggest supermarket beat analysts’ forecasts, serving up a 6.8 per cent rise in sales over its festive trading period, which runs until 6 January, at stores that have been open for at least a year. The cherry on the top of a financially super-sweet festive cake came via a £50m upgrade to its annual profit forecast.

In its trading update, the group highlighted demand for its Tesco Finest range of premium products. Sales of those rose by a stunning 16.7 per cent, which tells us that a substantial number of shoppers were able to set aside the brutal rise in the cost of food over the last couple of years in favour of treating themselves over the festive period.

A bumper set of numbers from M&S Food also speaks to that. It recorded a 9.9 per cent rise in sales. That number excludes the group’s half share in Ocado retail and focuses solely on M&S Food, which occupies a premium niche.

Britain’s food price inflation was obviously a major contributor to all of those numbers. But both Tesco and M&S also said they managed to boost sales volumes, which is the actual number of products going through the checkout (at higher prices) this year. “So did we,” said Sainsbury’s, which reported a day earlier and did well with food but was dragged down by a poor performance at its Argos unit.

It is hard to compare these retailers directly because they use different dates for the third quarter of their trading year and for what they define as the festive period. But from the City’s perspective, Tesco is winning. Its profit upgrade was cheered by analysts, while Sainsbury’s was kicked for the lack of one along with its Argos disappointment (blamed on “tough comparatives”).

For its customers, however, life hasn’t been so good. Unite, the trade union, was quick to make that point, railing against Tesco’s profit upgrade. “Corporations like Tesco have done very well out of the cost of living crisis, unlike working people, who have had to swallow inflated costs that have lined the pockets of the bosses and investors,” said the union’s general secretary Sharon Graham, who used the word “profiteering” in her statement.

Is that fair? The supermarkets would point you to their having “invested” in keeping prices as low as possible. This has included price-matching a certain number of products to Aldi, the cheapest grocer on the block.

But shopping at the latter would still save you a substantial amount of money, according to the monthly survey of prices put out by Which? The consumer group tests a basket of 43 products. Aldi was the cheapest in 11 of the last 12 months, with its rival Lidl coming top in the other one.

Aldi was the winner in December, during which its basket came to £74.83. Tesco could only manage fifth, out of a field of eight stores, at £84.86. Sainsbury’s was slightly cheaper, at £84.54, while the laggard was Waitrose, at £94.94. The privately owned Asda (£84.21) did the best out of the traditional big supermarkets.

Asda also came out top (£326.77) when Which? considered a larger basket of 131 items, a test from which Aldi and Lidl are excluded because of the limited number of ranges they offer. Tesco came fourth out of six (£349.34), while Sainsbury’s was fifth (£354.06). Waitrose again brought up the rear, at £367.79.

The Which? figures certainly suggest that, from the perspective of the consumer, there is room for improvement among the traditional supermarkets – although the supermarkets would point to their loyalty card schemes, which are excluded from the numbers and can further cut costs for those willing and able to sign up.

The numbers certainly speak of a competitive market and, if customers want to cut the price of their weekly shop, the opportunity is there for them to do so.

However, Ele Clark, retail editor at Which?, believes that supermarkets “can do more to help shoppers during the current cost of living crisis”.

“Although some have begun to make progress, we’d like to see all supermarkets stocking their smaller convenience stores with a selection of budget-range healthy foods, particularly in those areas most in need,” she says.

I’d personally want to look at profit margins before I’d think about using a word like “profiteering”. We will see those, in the case of the stockmarket-listed Tesco and Sainsbury’s, in the final results due later this year.

However, the cost of living crisis is going to remain a live issue throughout 2024. It is hoped that the rate of inflation will continue to fall, but it is still much higher than the Bank of England’s 2 per cent target, particularly in the case of food. According to the Office for National Statistics, between November 2021 and November 2023, the overall price of its food and non-alcoholic beverage category rose by around 27 per cent. That is a hideous number, and, as ever, it is the poorest who have been affected the most, because they spend a disproportionate share of their household budget on food.

Even if you accept that grocery is a highly competitive market, it doesn’t hurt to keep the pressure up on the biggest players. They have clearly done very well for themselves and for their shareholders. Their executives will be handsomely rewarded when the time comes to calculate their bonuses. The numbers put out by Which? suggest that they could stand to do better by their customers.

At the same time, though, those customers aren’t without power. If they were to spend more of their time and budget at Aldi, it might help to force the issue.