Tesco boss Dave Lewis believes food price inflation will slow down this year as pressures on sourcing costs begin to ease.
Lewis said Britain’s biggest retailer kept increases in shelf prices to a minimum during the golden quarter, insisting that it “passed on less inflation” to customers than its competitors.
According to data from Kantar Worldpanel released earlier this week, grocery prices were up 3.7% year on year in the 12 weeks to December 31, as the fall-out from the Brexit vote and the subsequent fall in the value of the pound continued to hit consumers in the pocket.
“The inflation we have seen in the second half of the year in particular is at least abating a little. There still will be some, but not as much as we’ve seen this year”
Dave Lewis, Tesco
But Lewis warned that, although inflationary pressures would slow in the coming year, “caution” among shoppers would remain.
Speaking after Tesco posted a 2.3% uplift in like-for-like sales in the UK and Ireland during the 19 weeks to January 6, Lewis said: “We’ve seen, at a macro level, that customer sentiment has changed in the second half of last year.
“There is definitely some caution in the way customers are talking about the year ahead.
“If there is some positive, it is that the inflation we have seen in the second half of the year in particular is at least abating a little. There still will be some, but not as much as we’ve seen this year.
“Our job, as always, is to think about how we can help and to make an offer that is beneficial to customers at a time when they are thinking about how they can make their money go a little bit further.”
Lewis hailed Tesco’s “record” Christmas performance, as sales increased across channels: online, convenience and its largest Extra supermarkets.
Despite a highly promotional market over the festive season – Kantar suggested 36% of all grocery sales were made on promotion in the final 12 weeks of 2017 – Lewis said its sales growth was “sustainable” beyond the peak trading period.
“The momentum in food is there, it’s sustainable, it’s long-term,” Lewis said.
“We’ve been very active in changing the offer of other things we bring to Tesco and I’m really very happy with the changes we are making there as we introduce new brands in homeware, which are working well.
“And we are managing the profit mix by managing other categories differently.
“Our clothing business grew by 5% again over the period and continues to post very strong returns.
“The trajectory we have for how it is we put an offer together in big stores I am very comfortable with.
“Food is very strong, and in the selected areas we want to be in in general merchandise, we have shown we can be successful.”