Tesco has warned that profits could fall by up to £400m this year as it prepares for a possible grocery price war with rival UK supermarkets.
The retail giant said it expects operating profits to be between £2.7bn and £3bn for the year ahead—below analyst forecasts of £3.2bn and down on last year’s results—as competition intensifies across the sector.
The warning follows Asda’s announcement of major price cuts, as it aims to undercut competitors by between 5% and 10% to attract customers back. Tesco’s chief executive Ken Murphy said the market is seeing “an intensification” of rivalry, but added the company is ready to defend its position, even at the cost of lower profits.
“We see further opportunities to protect and strengthen our competitiveness,” the company said in its latest trading update. Murphy said the revised guidance gives Tesco the “flexibility and the fire power” to maintain its market share.
The announcement spooked investors, with Tesco shares falling by 6%, while Sainsbury’s dropped 4.8% and Marks & Spencer slipped by 2.6%.
Analysts remain divided on the impact of Asda’s strategy. While some suggest Tesco’s profitability will be resilient, others believe the conditions are ripe for a full-scale price battle as consumers prioritise value amid the ongoing cost-of-living pressures.
Increased costs, including rises in minimum wage and employer National Insurance Contributions, have added £235m to Tesco’s operating bill. However, Murphy said he expects minimal impact from new US tariffs, noting that the supermarket sources the majority of its products domestically.
Despite the challenges, Tesco reported a 4% rise in annual sales to £63.6bn for the year ending 22 February. Pre-tax profit dipped by 3.2% to £2.2bn, while like-for-like sales rose 3.1%.
