Tesco has said it plans to cut more than 300 head office jobs while raising pay for shop workers for the third time in 13 months, as it issued a warning that profits would be hit by cost inflation.
The UK’s biggest retailer is aiming to make £500m of savings this year. The plans include a consultation on 325 job cuts in head office and regional management teams that began in the past fortnight, more automated tills and a reduction in the number of suppliers. It revealed a near-64% dive in half-year profits.
Tesco said it hoped those whose jobs were going could move into 500 other vacancies at head office.
The company said it was now on course for full-year profits of between £2.4bn and £2.5bn, wiping £100m off the upper end of its expectations. High energy prices would continue to drive up costs and the outlook for the peak Christmas grocery shopping season was uncertain, while shoppers would buy fewer smaller gifts, Tesco said.
One significant cost increase will be on pay. From 13 November, the basic hourly rate of pay in Tesco stores will increase by 20p to £10.30 (or £10.98 in London), taking the total pay rise this year to 8%. Those in the group’s Booker wholesale business will receive a 25p-an-hour rise to a minimum of £10.
Tesco is also bringing forward its next pay review to January, about three months earlier than usual, so that workers are likely to see another pay rise in the spring, rather than in August.
The latest increase puts Tesco workers on a par with John Lewis and just ahead of Sainsbury’s but behind Aldi and Lidl as retailers struggle to attract thousands of temporary staff for the peak Christmas season.
Tesco also said it was freezing prices on more than 1,000 products until next year.
Ken Murphy, its chief executive, said: “We know our customers are facing a tough time and watching every penny to make ends meet. As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market. Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders.”
He said it was “hard to tell” whether the government had done enough to help households with their winter bills or whether inflation on food had peaked.
Murphy called on the government to cut the burden of business rates, a tax based on property, by a fifth and to make up the difference by increasing an online sales tax. He said the impact on Tesco would be fairly neutral but it would help shops in deprived areas where retail was often the biggest employer.
The announcements on pay and prices came as Tesco revealed a drop in pre-tax profits for the six months to 27 August to £413m. Sales rose 6.7% to £32.5bn.
Sales at established supermarkets in the UK increased only 0.7%, suggesting a marked drop in the amount of goods sold since price inflation across the grocery market was more than 5% during the period.
However, Murphy said Tesco had pulled off a “really strong performance” as shoppers had returned to more normal behaviour when offices, restaurants and cafes reopened after last year’s pandemic lockdowns. “We are on track despite a tough environment.”
He added that shoppers had been increasingly changing their behaviour over the summer as they reacted to the loosening of pandemic restrictions and the soaring the cost of living. Households are buying more frozen goods in an effort to cut waste, cutting back on buying clothing and other non-food items and switching away from brands towards Tesco’s own-label goods.
Tesco said there had been a 13% increase in sales of its Finest premium own-label range as shoppers switched from eating out to dining at home. Murphy said he expected families to buy fewer smaller gifts this Christmas and to be managing their budgets by eating at home rather than going out for meals as they tried to “celebrate in an affordable way”.
Despite evidence that shoppers are reining in spending on home deliveries, with Tesco’s online sales down 11.3%, the group said it planned to almost double the size of its fast-track delivery service, Whoosh, from more than 400 to 800 by the end of the year.