Price Cuts Bite Into Iceland’s Growth As Retailers Fight For Market Share

Rapid growth at Iceland has slowed sharply as the frozen food retailer faces mounting pressure from a fierce supermarket price war, the Telegraph has reported.

The company told bondholders that underlying profits rose by just 0.6pc to £317.6m in the year to the end of March, compared with a 24pc increase the previous year. Revenues were broadly flat at £4.2bn, though its 2024 financial year was boosted by an additional trading week. Adjusting for this, sales were up 3pc year on year.

The slowdown is linked to Iceland’s efforts to keep prices low as rival supermarkets battle to attract and retain shoppers. Earlier this year, Asda launched a price war to reverse years of decline. Its new chairman, Allan Leighton, pledged to deploy a “war chest” to fund price cuts, improve product availability and refresh stores. The company has warned that profits will take a “material hit” as a result. Tesco also announced that its profits could fall by up to 14pc this year as it invests £400m in price cuts.

In response, Iceland has intensified its multibuy promotions, offering customers discounted bundles. While the number of items sold rose by 5.3pc last year, this did not translate into higher sales value.

Credit ratings agency Fitch said that customers continue to turn to Iceland for value “despite heightened competition,” with its market share holding steady at 2.3pc to 2.4pc over the past five years.

Fitch added: “We expect Iceland’s product offering to remain competitive for UK food consumers with weaker spending power.” However, it also raised concerns about profitability, noting that Iceland will need to invest in price cuts while facing rising costs. Fitch warned of “momentary profit pressure” and forecast a dip in underlying profits this year, citing an estimated £50m increase in costs due to the rise in National Insurance and the minimum living wage.

Iceland chairman Richard Walker has criticised the National Insurance hike, saying earlier this year that it had “added greatly to the cost of business.” He gave the Labour government a “six out of 10” for its performance. Last year, after Rachel Reeves’s Budget, Walker urged companies to stop “wallowing” and “complaining” about the tax rise, stating: “The Government isn’t going to change its mind. It was a tough Budget, but we adapt.”

The anticipated profit squeeze follows warnings from chief executive Tarsem Dhaliwal in April that Iceland was preparing for rising food costs. Speaking to The Grocer, Dhaliwal said: “The reality is that we have to be conscious of the fact our suppliers are going to pass the costs onto us, literally straight away. We can’t absorb all that, I don’t think any retailer can, so there’s going to be food inflation.”

He added that Iceland would fight to “remain competitive,” cautioning: “Consumers might end up with less items in their basket, still spending £10 but on less items.”

Food inflation is currently running at around 4pc, according to the British Retail Consortium, driven by rising prices of staples such as meat and tea.

Iceland has declined to comment.