Tesco (TSCO.L) raised its annual profit forecast on Wednesday as food inflation eased and shoppers snapped up Britain's biggest supermarket's basic and premium ranges, adding to momentum ahead of the key Christmas trading period.
Tesco boss Ken Murphy said he expected consumer confidence to improve as Britain's overall inflation rate, which hit 11.1% last year, continues to ease.
Price pressures have forced Tesco, with a 27% grocery market share, to rip out costs so it can compete with German discount chains Aldi and Lidl, while also improving its "Finest" range to appeal to people treating themselves at home rather than eating out.
"If the consumer's feeling a bit chipper, I think it's because they're seeing stability in pricing and actually they're starting to see prices coming down," Murphy said.
British food prices fell in September for the first time in more than two years in month-on-month terms and the annual rate of food price inflation fell for a fifth month in a row to 9.9%, according to industry data.
Improving sentiment could help Tesco as Christmas nears.
"We think the customer is in good shape for this Christmas," Murphy said, highlighting that Tesco was benefiting from shoppers with squeezed disposable incomes buying themselves small treats such as a special Friday or Saturday night meal.
Shares in Tesco, which are already up 16% this year, rose 2.6% to 266 pence in early trading, after it said it now expects 2023/24 retail adjusted operating profit to be between 2.6 billion pounds ($3.14 billion) and 2.7 billion pounds.
