Tesco to lead the way on supermarket price cuts by leaning on suppliers

Warehouse workers and and drivers at Tesco are to hold a series of strikes over pay which their trade union says could result in shortages in stores.

Tesco is pushing suppliers to pass on savings from falling costs as Britain’s biggest supermarket sets out to cut prices more aggressively than its rivals.

In a presentation to its grocery suppliers on Thursday, Tesco characterised the market as moving from “inflation to deflation” and made clear it intended to lead on price cuts.

Tesco, led by chief executive Ken Murphy, included charts showing a 50 per cent drop in wholesale electricity prices, a 22 per cent drop in plastic PET packaging prices, and an 84 per cent fall in the cost of freight over the past year.

Suppliers remarked that Tesco was being selective, pointing out that other costs, notably wages, are still rising.

Supermarket chiefs have been stung by recent accusations of profiteering. Asda’s co-owner, Mohsin Issa, has been summoned by MPs for questioning this week, and he has written to them in advance to say he expects food inflation to ease further during the UK’s summer growing season. Issa warned, though, that fixed-term contracts mean it will take three to nine months for falling prices to feed through to consumers.

Food prices rose 18.4 per cent in the year to May, according to official figures, and researcher IGD forecasts that food inflation will decline to only 9 per cent by the end of the year, calling labour shortages the industry’s Achilles’ heel.

David Sables, boss of Sentinel Management Consultants, noted that Tesco is “pressuring” suppliers to lower prices amid a review of its entire fresh and packaged- grocery ranges. “Suppliers who don’t play ball will not fare well in the range reset.”

A Tesco spokeswoman said: “We’re working … with suppliers to mitigate the impact of inflation as much as we can, particularly as some commodity and input prices begin to fall. When we see opportunities to pass on savings to customers, we’ll take them.“