Iceland under pressure as supermarket price war intensifies

 Rapid growth at Iceland has ground to a halt as the frozen food chain comes under mounting pressure in the face of an intensifying supermarket price war.

The retailer has told bondholders that underlying profits rose just 0.6pc to £317.6m in the year to the end of March, compared to a 24pc jump the prior year.

Revenues were largely flat at £4.2bn over the year, although its 2024 financial year – when sales jumped 6.6pc – was boosted by an additional trading week. Stripping these figures out, sales were up 3pc this year on prior year.

The slowdown is understood to have come as Iceland pushes to keep prices lower as supermarkets battle to attract and retain shoppers.

Earlier this year, Asda kicked off a price war in an attempt to stem years of declines. Its new chairman, Allan Leighton, has vowed to use a “war chest” to fund price cuts, improve availability of products and refresh tired stores.

The company said this would mean profits would take a “material hit”. Tesco responded by saying its profits would fall as much as 14pc this year with plans to invest £400m in price cuts.

To avoid losing shoppers to rivals, Iceland has been stepping up its programme of multibuy promotions, where customers can buy bundles of products for less than if they bought them separately.

This meant that while the number of items it sold last year increased by 5.3pc, it did not see an rise in the value of its sales.

Credit rating agency, Fitch, said shoppers continued to turn to Iceland for value “despite heightened competition”. Its market share has remained flat at between 2.3pc and 2.4pc over the past five years.

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 supermarket chain would have to invest in price cuts this year at a time when it is battling higher costs.

It said the supermarket, which employs more than 30,000 people, would face “momentary profit pressure”, publishing forecasts suggesting underlying profits could dip this year.

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 chairman, Richard Walker, said earlier this year the National Insurance raid had “added greatly to the cost of business”, ranking the Labour government a “six out of 10” for its performance in office.

It followed earlier efforts to downplay the hit. Last year, after Rachel Reeves’s Budget, Mr Walker said companies should stop “wallowing” and “complaining” about the tax raid.

Mr Walker, who had been a donor to the Tory party before switching allegiance to Labour, said last December: “The Government isn’t going to change its mind. It was a tough Budget, but we adapt.”

The expected profit crunch comes after Iceland’s chief executive, Tarsem Dhaliwal, in April said the company was bracing for surging food costs.

Speaking to industry publication. The Grocer, Mr Dhaliwal said his 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.”

At the time, Mr Dhaliwal said that Iceland would be battling to “remain competitive”, adding: “Consumers might end up with less items in their basket, still spending £10 but on less items.”

Already, food inflation is running at around 4pc, according to figures from the British Retail Consortium, with increases in the price of staples such as meat and tea fuelling the higher level.