Intense price competition in the supermarket sector is impacting profit growth at frozen food specialist Iceland.
According to The Telegraph, the retailer has recently informed bondholders that its underlying profits increased by only 0.6% to £317.6m in the year to the end of March 2025, compared to a 24% rise in the prior year.
Revenues were largely flat at £4.2bn, although its previous financial year – when sales rose 6.6% – was boosted by an additional trading week. On a comparative 52-week basis, sales were up 3% this year.
The report noted that the profit slowdown follows Iceland pushing to keep prices lower as supermarkets battle to attract cash-strapped shoppers.
Iceland has been stepping up its programme of multibuy promotions.
This meant that while the number of items it sold last year increased by 5.3%, it did not see a rise in value sales.
Credit rating agency Fitch said shoppers continued to turn to Iceland for value “despite heightened competition”. However, its market share has remained relatively flat in recent years at around 2.3%, with latest industry data from Worldpanel by Numerator showing the group’s sales grew only 2.8% over the 12 weeks to 13 June, well behind the leading supermarket multiples and discounters.
Fitch added: “We expect Iceland’s product offering to remain competitive for UK food consumers with weaker spending power.”
However, the credit ratings agency raised concerns over Iceland’s profitability, suggesting the chain would have to continue investing in price cuts at a time when it is battling higher costs. Fitch said: “The company, along with other UK-based retailers, will be hit by the rise in National Insurance and minimum living wage contributions from [this year], which we estimate will result in an additional cost of £50m.”
Iceland’s Chairman, Richard Walker, said earlier this year the National Insurance hike had “added greatly to the cost of business”.
Meanwhile, Iceland’s Chief Executive, Tarsem Dhaliwal, said in April that the company was bracing for surging food costs. Speaking to trade publication The Grocer, he noted that the biggest concern was rising prices being imposed by its suppliers.
He said: “The reality is that we have to be conscious of the fact our suppliers are going to pass the costs onto us, literally straight away. We can’t absorb all that, I don’t think any retailer can, so there’s going to be food inflation.”
NamNews Implications:
- Consumers are shopping around for value via a combination of promos and own-label ‘equivalents’.
- i.e. business is there for the asking…
- …meaning Iceland have had to take a hit on profits to attract their fair share.
- With more cost increases in the pipeline…
- …Iceland are signalling the inevitability of having to raise shelf prices.
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