Tesco boss Dave Lewis says grocer has narrowed the price gap to Aldi and Lidl despite inflation

Lewis said the supermarket giant had worked with its suppliers to “mitigate” rising shelf prices “as much as we possibly can” during the first half of its financial year.

The retailer has also grown sales volumes and stepped up its cost cutting drive, allowing it to reinvest some of that cash into price.

Lewis said inflation in the wider grocery market was between 2.7% and 3.2% during the six-month period, but said prices at Tesco had risen 1% less than those in the rest of the market.

And he suggested Tesco’s prices had increased at an even slower rate in comparison to its discount rivals.

“There are lots of macroeconomic things out there that may change, but at the minute we are not seeing anything around inflation that would lead us to indicate a change in the trend”

Dave Lewis, Tesco

Speaking after Tesco posted a 691.5% surge in statutory pre-tax profit to £562m in the 26 weeks to August 26, Lewis said: “Versus headline inflation, we are 1% below our peers. I think against the German retailers it’s actually more than that 1%, so it has sharpened our competitive pricing versus that market.

“That is consistent with the aspirations we set for ourselves.

“From the very first moment, we have been saying we want to look at [sales] volume, [the proposition] mix and cost as a way of being able to turn around the business.

“As we’ve made improvements in volume and we’ve made improvements in cost, we’ve chosen to invest that in giving a better offer for our customers.

“Our price position is sharper because of the way we have dealt with inflation and there are 300,000 more customers shopping in Tesco this year than there were last year.”

Despite Tesco keeping a lid on price increases, Lewis warned there was more work to be done for the remainder of its financial year.

“There clearly is inflation out there,” Lewis added.

“There is nothing at all to suggest that the inflationary pressure will change in the second half versus what we saw in the first half, and so for us, you should see a similar approach in the second half to the one you’ve seen in the first.

“Clearly, there are lots of macroeconomic things out there that may change, but at the minute we are not seeing anything around inflation that would lead us to indicate a change in the trend.”

Lewis hailed Tesco’s progress on price as just one indication that the grocer’s turnaround was “on track”.

Like-for-like sales in the UK advanced 2.1% in its first half, while sales volumes in its core British business were up 0.3%.

Group sales climbed 3.3% to £25.2bn, helping to drive group operating profit before exceptional items – Tesco’s preferred measure of profitability – up 27.3% to £759m.

Lewis said he was “comfortable” with analysts’ consensus of a £1.5bn group operating profit for the full year.