Tesco urges ministers to cut costs as Iran clashes

Britain’s biggest retailer has called on the government to cut taxes and power for retailers to help protect homes from rising prices, as the retailer widens its profit guidance amid rising tensions in the Middle East.

Reporting an 8.5 per cent rise in pre-tax profits for the year, Ken Murphy, Tesco’s chief executive, used the FTSE 100 group’s full-year review to make a direct appeal to Whitehall. “Regarding tax pressure, industries and energy in particular, anything the government can do to help us keep prices low for customers is welcome,” he said.

Murphy promised that Tesco would do “everything we can” to protect consumers from any inflation caused by the Iran war, which he said “creates more uncertainty for consumers and the wider economy”. He praised ministers for making plans for extreme emergencies, including scenarios involving a long-term closure of the Strait of Hormuz and a collapse of the carbon dioxide supply chain that could, in the summer, lead to shortages of chicken, pork and other staples.

The manager of Tesco said that the retailer “always communicates with the government in different ways and in different departments” to help in that situation. So far, he stressed, Tesco or its suppliers have not reported “any problems” in the supply chain or any “perceptible changes in customer behavior patterns as a result of the conflict so far”.

The group, which controls around 28 per cent of the UK grocery market, has increased its guidance for this year, forecasting adjusted operating profit of between £3 billion and £3.3 billion, compared to £3.15 billion delivered in the year just ended. Tesco said the final outcome would depend on the duration of the conflict, its effects on UK household spending and the wider economic situation.

Asked if inflationary pressures had already become apparent since the war, Murphy said Tesco “doesn’t see any meaningful inflation happening at this stage”, bar well-marked increases in fertilizers and energy. He was coy on the Food & Drink Federation’s warning earlier this month that food and non-alcoholic drink price rises in the UK could rise by between 9 and 10 per cent by the end of the year, a figure which a Tesco boss said he “doesn’t see”.

“It is impossible to predict and it would be wrong for me to throw a number there or a time, because everything depends on the timing 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 clear that this is an unpredictable dynamic.”

Tesco is among the first major British retailers to report trading since the outbreak of conflict in the Middle East. Next, the listed fashion and home retailer, and Morrisons, the fifth-largest grocer, both flagged major country risks, rising costs and a “challenging” consumer landscape.

The former fields, too, are feeling the strain. Many supermarket operators have reported local, temporary fuel shortages in recent weeks as drivers rush to fill up ahead of an expected price increase. Allan Leighton, Asda’s chairman, recently confirmed that a number of the chain’s locations had closed, although he described the situation as local “wings” rather than a nationwide shortage.

Murphy said Tesco had seen “higher demand” but insisted the business was “in good shape in terms of fuel numbers”. The grocer also depends on its inventory investment to protect operations. “We have started a comprehensive plan to electrify our grocery vans,” he said. “[About] 30 to 40 percent of our fleet is now electrified. That will put us in a good position.”

Analysts have warned that Tesco’s balancing act, between cutting costs and protecting value propositions, is becoming increasingly fragile. Eleanor Simpson-Gould, a retail analyst at GlobalData, said: “Due to the conflict in Iran for the store and consumers, the CEO Ken Murphy has rightly emphasized his commitment to keeping prices low. However, the retailer should be careful not to increase investment in price reductions as this risks deepening the already clear profit and reducing profits.”

However, Tesco said it outperformed the market in both value and volume, showing that its drive to win shoppers from German discounters Aldi and Lidl is paying off. The group, which owns the Booker cash and carry business and operates stores in central and eastern Europe and the Republic of Ireland, holds its position with a mix of premium and value brands, Aldi Price Match and loyalty instruments such as Clubcard Prices.

Jefferies analysts described a “strong end to the year”, calling it “evidence of exceptional delivery over the past year”. Clive Black of Shore Capital commented: “While it may be boring for some, it has to be said, compared to the strong comparisons of many years, by offering a new growing space, unlike Aldi, Tesco in its main UK market has done another really impressive job in the financial year 2026 to achieve both volume and value. [sales] and market share.”

For SME suppliers sitting on Tesco’s path, the message from Welwyn Garden City is clear: the grocer intends to protect the price with discipline, but the real variables, the length and breadth of the Gulf conflict, lie outside the control of the boardroom.