Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest

FOR any food retailer soaring inflation is a headache right now. For the UK’s ‘big four’ who have been in a decade long battle with not only one another, but also the German discounters Aldi and Lidl, it’s one more problem they could do without.

Just when they might have hoped life stood a chance of getting back to normal post-pandemic, inflation is now posing far more of a threat. Cost-conscious shoppers will have no choice but to cut spending if the rate of inflation keeps on rising.

The UK’s largest supermarket, Tesco (TSCO) has already seen its share price fall as the cost of living crisis has started to bite. With the latest Office for National Statistics figures showing the price of pasta has skyrocketed by as much as 50%, the battle is well underway to balance margins against market share.

Tesco has appeared bulletproof so far. Pre-tax profits last year rocketed to £2.03 billion, up from £636 million the year before. Group sales, excluding fuel, rose by 2.5% to £54.8 billion, while in the UK retail sales rose by 2.3% year-on-year. But that was when the pandemic was the worst of its worries.

Tesco has managed to hold its market share steady over the past year and actually increased it over the past two years. However, the same can’t be said of Tesco’s share price. Worries that squeezed shoppers will cut costs by buying less, hunting around for the lowest of prices and potentially leave Tesco with surplus stock, has investors worried.

We’ll find out whether they should be when Tesco posts its first quarter figures on Friday (17 June).

Tesco is the clear leader of the pack, for now, which means that where it goes, the others will surely follow; whether that’s when it comes to price competitiveness in the shape of its market-leading Clubcard Prices scheme, or by offering workers more attractive salaries.

“Every little helps” or so they say, and for Tesco that extra muscle when it comes to negotiating with suppliers must be being flexed to the full right now. Former Tesco boss and now Morrisons chair Sir Terry Leahy has declared the UK supermarket sector “past the peak of the disruptive effect of discounters”. Tesco and its competitors will hope he’s right.

Tesco, Sainsbury’s, Asda and Wm Morrison all insist they have learnt the lessons of the financial crash, when they passed on price rises and maintained margins, but at the cost of permanently losing market share to the discounters. Investors will hope Tesco has heeded that lesson well. And that the cost-of-living crisis doesn’t last too long.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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