James Davey and Paul Sandel
LONDON (Reuters) – Britain’s biggest retailers, including Tesco (OTC:), Sainsbury’s (LON:), M&S and Next (LON:), say they are increasing their drive to improve efficiency through automation and other measures to limit the impact of rising costs on the prices they charge their customers.
As the UK economy struggles to grow, the Labor government’s new move is to raise taxes on employers to raise money for investment in infrastructure and public services, drawing criticism from the business community.
Retailers said increases in social security payments, increases in the national minimum wage, packaging charges and business rates rises – all due in April – would cost the sector 7 billion pounds ($8.6 billion) a year.
Concerns about the wider economic fallout have led to a sharp fall in retail share prices this week and increased government borrowing costs.
In the retail sector, larger players have more room to adapt and are cushioned by previous strong profits, but analysts say smaller players could come under severe pressure.
Clothing retailer Next said it faced a £67m increase in wage costs in the year to the end of January 2026, but still forecast profits to rise.
He believes he can offset the higher wage bill with measures including a 1% price rise, which he says is “undesirable but still lower than overall UK inflation”. It can also improve operational efficiencies in warehouses, distribution networks and stores, the company said.
Chief executive Simon Wolfson said increased automation was inevitable across the sector.
“With any mechanization project, you always look at the ROI—you ask, “What are the savings compared to the cost of mechanization, artificial intelligence, or software?” he told Reuters.
“If the price of mechanization doesn’t go up, but the price of the labor it saves does, that will mean more projects can be justified.”
MORE ROBOTS?
Bakery and food takeaway chain Greggs (LON:) last year opened a highly automated production line at its site in Newcastle, north-east England, meaning it can produce 4 million more steaks and other products each week from its current 10 million.
Tesco, the UK’s largest supermarket, is also increasing its automation and will open a robotic refrigerated distribution center in Aylesford, south-east England, later this year.
No. 2 grocer Sainsbury’s is encouraging more shoppers to use SmartShop’s handheld self-scanning technology.
One of the top 30 investors in Sainsbury’s, which also owns shares in Marks & Spencer (OTC:), is sympathetic to small British retailers. He said tax increases by employers would disproportionately affect them because they don’t have the capital to mitigate the impact of tax increases by investing in technology.
“If you’re a one-unit light bulb business in Hemel Hempstead, you can’t do that,” he said, referring to the town north-west of London.
Despite Tesco facing a £250m annual hit just from the rise in employers’ national insurance contributions, chief executive Ken Murphy said the company would cope.
Having weathered the COVID pandemic, supply chain disruption and commodity and energy inflation, he said Tesco was used to dealing with rising costs by finding savings elsewhere.
Chief financial officer Imran Nawaz said Tesco’s Save to Invest program is on track to deliver £500 million in efficiency savings in the year to February 2025, reaching £640 million in 2023/24 .
“As we look to the future, it is clear that this will be another year in which we will need to do a brilliant job,” Nawaz said, highlighting savings from improved procurement by Tesco’s purchasing organization in logistics, freight and waste reduction .
Sainsbury’s, which faces additional national insurance hurdles of £140m, similarly plans to save £1bn by March 2027.
Clothing and food retailer M&S, which faces an additional £120 million in wage costs, said it was aiming to pass on “as little as possible” to consumers.
One of the biggest names on the British high street, the 141-year-old retailer is in the midst of a successful turnaround program and believes it can continue to realize further savings by modernizing its distribution and supply chain.
“My summary is: a lot of work, but a lot is under our control and we must be ruthlessly focused on costs over the next 12 months,” said chief executive Stuart Machin.
“We talk a lot about volume growth because the more we sell, the more it will offset some of that pricing pressure.”
But for many small players, raising prices is the only option.
A British Chambers of Commerce survey of 4,800 businesses, mostly with fewer than 250 staff, found a planned price rise of 55%, potentially making it difficult to contain inflation and grow the economy.
And some may need more drastic action.
British discount retailer Shoe Zone said the extra budget costs meant some stores were no longer viable and would close.
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