Tesco targets £500M in cost cuts to counter tax hikes and a price war led by Asda while maintaining its 28.3% UK market share. Learn how the supermarket giant navigates challenges in 2025.
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Tesco, the UK’s largest supermarket chain, has unveiled plans to slash an additional £500 million in costs as it battles rising taxes, a fierce price war, and shifting consumer demands.
This month’s announcement follows a year of strong sales but declining profits, with the retailer bracing for a challenging 2025.
Financial Pressures Mount
For the financial year ending February 2025, Tesco reported a 3.5% sales increase to £63.6 billion and a UK market share of 28.3%, its highest since 2016, according to Kantar.
However, pre-tax profits fell 3.2% to £2.2 billion, hit by rising operational costs.
The retailer forecasts adjusted operating profit of £2.7–£3 billion for the current year, down from £3.1 billion, mainly due to a £235 million increase in National Insurance Contributions following Chancellor Rachel Reeves’s tax hikes, effective April 2025.
The cost-cutting plan builds on £510 million in savings achieved last year and aims for over £1 billion in total reductions.
Tesco focuses on warehouse automation, supply chain efficiencies, and operational streamlining.
While job cuts remain a possibility, CEO Ken Murphy emphasized the company’s history of workforce growth, though 400 roles were eliminated in January as part of a “simplification” strategy.
Price War Intensifies
Tesco’s cost-saving measures come amid a growing price war sparked by Asda’s pledge for its most significant price cuts in 25 years.
Murphy reaffirmed Tesco’s commitment to competitive pricing, leveraging its Clubcard loyalty scheme and Aldi Price Match offers to retain customers.
Despite competitive pressures, Tesco gained 60 basis points in UK market share and holds a 35% share of the online grocery market.
However, the retailer’s share price tumbled nearly 7% on April 10 after the profit warning, with analysts noting similar declines for competitors like Sainsbury’s and Marks & Spencer.
Morningstar analysts, however, argue that the market’s reaction was overly pessimistic, citing Tesco’s strong market position and scale advantages.
Customer Experience Challenges
Recent customer feedback on social media platforms like X highlights frustrations with Tesco’s store changes, including reduced manned tills and a reliance on self-service checkouts.
A technical glitch on April 24 disrupted online orders for over 1,000 shoppers, and another incident led to a customer being wrongly accused of a scam, prompting a public apology.
Tesco is also reportedly overhauling 2,000 stores, though details remain scarce.
Speculation on platforms like Reddit suggests potential cuts to in-store bakeries and cafés, with some stores shifting to bake-off models to save costs.
These claims await official confirmation.
Sustainability and Strategic Moves
Beyond cost-cutting, Tesco is investing in sustainability and health.
The retailer reduced scope 1 and 2 carbon emissions by 61%, surpassing its 2025 target, and deployed 278 electric delivery vans.
Healthy products account for 63% of sales, with Tesco’s “Better Baskets” campaign promoting affordable nutrition.
Strategically, Tesco is exiting its banking operations and selling them to Barclays for £700 million in cash, with the deal set to close later this year.
Combined with a £250 million dividend from Tesco Bank, this will deliver £1 billion to bolster its core retail business.
The retailer also updates Clubcard price signage across stores following a legal dispute with Lidl.
Outlook for Tesco and UK Retail
Tesco’s cost-cutting and pricing strategies reflect broader challenges in UK retail, where tax hikes, wage increases, and consumer thriftiness are squeezing margins.
Its ability to maintain market dominance while addressing customer concerns will be critical.
As the grocery sector navigates a digital-first, value-driven landscape, Tesco’s moves could set the tone for competitors.
For now, Tesco remains a retail titan, but its 2025 balancing act—cutting costs, competing on price, and keeping shoppers satisfied—will determine its trajectory in an increasingly competitive market.
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