Britain’s biggest supermarket has called on the government to cut tax and energy burdens on retailers to help them protect households from rising prices, as the grocer expanded its profit forecast amid escalating conflict in the Middle East.
Tesco chief executive Ken Murphy reported an 8.5 per cent rise in annual pre-tax profit and used the FTSE 100 group’s full-year update to make a direct appeal to Whitehall. “In terms of fiscal pressures, particularly in industry and energy, anything the government can do to help us keep prices down for customers is welcome,” he said.
Murphy pledged that Tesco would do “everything in our power” to protect shoppers from a fresh surge in inflation triggered by the war in Iran, which he said “creates further uncertainty for consumers and the wider economy”. He praised ministers for drawing up worst-case contingency plans, including scenarios involving a prolonged closure of the Strait of Hormuz and a collapse in the carbon dioxide supply chain that could cause shortages of chicken, pork and other staples by the summer.
The Tesco boss said the grocer was “in constant contact with the Government in various ways and through various departments” to help plan for this scenario. He stressed that so far neither Tesco nor its suppliers had reported “any problems” in the supply chain or “significant changes in customer behavior as a result of the conflict”.
The group, which controls around 28 percent of the British grocery market, expanded its forecast for the current year and forecast adjusted operating profit of between 3 and 3.3 billion pounds, compared to 3.15 billion pounds last year. Tesco said the final outcome would depend on the duration of the conflict, its knock-on impact on UK household spending and the broader economic climate.
Asked whether inflationary pressures had already become apparent since hostilities began, Murphy said Tesco “does not expect significant inflation at this stage”, apart from clearly visible increases in fertilizer and energy. He responded particularly calmly to the Food & Drink Federation’s warning earlier this month that food and non-alcoholic drinks inflation in the UK could rise to 9 to 10 percent by the end of the year, a figure the Tesco boss “failed to recognise”.
“It is impossible to speculate on this and it would be wrong if I gave a number or a time, because everything depends on the duration of this conflict and the impact it has on energy prices in general,” he said. “We don’t know what it will look like because it is clearly a very volatile and unpredictable situation.”
Tesco is among the first major listed retailers in Britain to report on trading since the outbreak of the Middle East conflict. Next, the listed fashion and home furnishings retailer and Morrisons, the fifth largest grocer, have both highlighted significant geopolitical risks, rising costs and a “challenging” consumer environment.
Gas stations are also feeling the strain. Several supermarket operators have reported localized, temporary fuel shortages in recent weeks as drivers rushed to fill up ahead of expected price increases. Allan Leighton, Asda’s chairman, recently confirmed that a handful of the chain’s sites had run out of supplies, although he described the situation as local “spikes” rather than a national deficit.
Murphy said Tesco had seen “increased demand” but insisted the company was “in a good place in terms of fuel supplies”. The grocer is also leveraging its logistics investments to insulate its operations. “We’ve started a pretty comprehensive electrification program for our grocery delivery trucks,” he said. “(Approximately) 30 to 40 percent of our fleet is now electrified. That will benefit us.”
Analysts warned that Tesco’s balancing act between absorbing costs and protecting its value creation was becoming increasingly delicate. Eleanor Simpson-Gould, retail analyst at GlobalData, said: “With the Iran conflict front and center for the grocer and consumers, chief executive Ken Murphy has rightly reiterated his commitment to keeping prices low. However, the grocer must be careful not to invest too heavily in price cuts as this risks exacerbating already significant pressure on margins and profitability.”
Nonetheless, Tesco said it outperformed the market in both value and volume, signaling that its campaign to win back shoppers from German discounters Aldi and Lidl was bearing fruit. The group, which also owns cash-and-carry business Booker and operates stores in Central and Eastern Europe and the Republic of Ireland, has maintained its position through a mix of premium and value ranges, Aldi Price Match and loyalty mechanisms such as Clubcard prizes.
Analysts at Jefferies described a “strong end to the year” and called it “a testament to last year’s exceptional performance.” Shore Capital’s Clive Black was more blunt: “Although it may be a bit boring for some, it has to be said that Tesco has done another truly commendable job of gaining both volume, value (sales) and market share in its core UK market in FY2026, compared to several years of difficult comparatives and with hardly any mature new area contributions compared to Aldi.”
For SME suppliers within Tesco’s sphere of influence, the message from Welwyn Garden City is clear: the grocer is committed to defending price in a disciplined manner, but the real variable, the length and breadth of the Gulf conflict, is clearly beyond the boardroom’s control.
