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Tesco puts squeeze on suppliers so it can cut grocery prices for customers

Tesco is pushing for lower prices from grocery suppliers so it can pass them on to its shoppers, arguing that the tide is turning on inflation and it wants to be able to move faster than its rivals.

In a presentation to suppliers at the end of last week, Tesco described the grocery market as moving from “inflation to deflation” and made clear that it wanted to get out in front of rival supermarkets by cutting prices more aggressively.


The overview included charts showing a 50% drop in wholesale electricity prices, a 22% drop in plastic PET packaging prices, and an 84% fall in the cost of freight over the past year, according to the Sunday Times.


The feedback from some suppliers was that Tesco was being “selective” because other costs, such as wages, were still rising. However, with the UK’s biggest supermarket chain reviewing its ranges, companies that do not comply risk having their products dropped from its shelves.


The move comes ahead of a week of intense scrutiny for supermarket and food industry chiefs, who have been stung by recent accusations of profiteering, with the consumer group Which? highlighting that grocery prices have risen by more than 25% over the past two years.


On Wednesday, the Office for National Statistics will publish inflation data for June, which is expected to show the headline rate eased to 8.2% from 8.7% in May – still well above the Bank of England’s 2% target.


On the same day, Asda’s billionaire co-owner Mohsin Issa, and Sarah Cardell, the chief executive of the UK’s competition regulator, the Competition and Markets Authority, will be grilled by MPs on the outlook for food and fuel prices.


In recent months, the rising cost of food and drink has been one of the reasons why inflation remains stubbornly high. The Which? grocery inflation tracker, based on the prices of 25,000 products across eight supermarkets, recorded 15.4% for the 12 months to June, down from 16.5% in May. The average across all eight big chains on a two-year basis is 25.8%.


In the run-up to Wednesday’s hearing, Issa wrote to MPs, stating that he expected food inflation to ease further during the UK’s summer growing season. He warned, though, that fixed-term contracts meant it would take between three and nine months for falling prices to feed through to consumers.


MPs are keen to grill Issa on the cost of fuel on Asda’s forecourts, after a recent investigation by the UK’s competition watchdog revealed that in 2022 drivers paid about 6p a litre more than they would have done otherwise as retailers increased profit margins. This ran contrary to evidence given by an Asda executive in a previous session, who said it was not doing anything differently.


A Tesco spokesperson 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.”


Helen Dickinson, the chief executive of the British Retail Consortium, said that after two years of sky-high inflation, during which energy, labour, commodity, farm, and transport costs all rose significantly, it was “little surprise” that prices were higher than two years ago.


“In recent weeks we have seen the prices of some key staples, such as butter and bread, begin to fall, as fierce competition between retailers continues to help customers get the best value in their weekly shop,” she said. “Meanwhile, retailers continue to invest heavily in lower prices, locking the price of many essentials, and providing discounts for vulnerable groups.”


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