Tesco (Other OTC: TSCDY - news) has warned that the horse-meat scandal will hit profit margins and may force up prices for consumers, as Britain’s biggest supermarket pledged to conduct tests on all the meat it sells.
The supermarket has been one of the largest companies caught up in the horse-meat scandal after some of its value burgers were found to contain the meat. Conducting DNA tests on the meat it sells will cost up to £2m a year, Tesco said.
“The total cost of the testing will be borne by Tesco,” said chief executive Philip Clarke. “The total cost isn’t that great, but in the scheme of things, our margin will come down a touch.”
With consumer confidence hit by a scandal that has since spread to Europe, the supermarket chain said that it would conduct a complete investigation of its supply chain. Tesco wants to be “totally confident in how our products are sourced”, Mr Clarke told the annual conference of the National Farmers Union. “I am in no doubt that we will find things we don’t like.”
The scandal is the latest headache for Mr Clarke, who last year introduced a £1bn programme designed to arrest Tesco’s falling sales in the UK. Sales figures over Christmas suggested that the plan is starting to pay off, but analysts said that the horse-meat controversy will not help.
In his first major comments since the start of a scandal that has ensnared companies from Ikea to Aldi, the Tesco boss admitted that the complexity of the food industry left it open to “exploitation by rogue elements”.
In an effort to win over consumers, Tesco said that it would source more of the meat it sells from Britain, starting with fresh chickens.
However, Mr Clarke admitted that the scandal could ultimately leave consumers paying more for their meat. “I hope that it doesn’t mean price increases, but I can’t stand here today and tell you that it won’t,” Mr Clarke (Toronto: CKI.TO - news) said.
Earlier in the day, he told Sky News: “We feel the need to bring the food closer to home. We think it’s right to bring more of it back to the UK, so long as we can get the demand from the UK.”
Figures released this week showed that sales of frozen beef burgers have almost halved since the scandal erupted in the middle of January, underlining the pressure on Tesco and the rest of the industry to strengthen public confidence in the supply chain.
Mr Clarke insisted that cases of contamination in the company’s supply chain are “tiny”, but added: “I am as shocked as anybody else.”
Tesco said it is establishing a website that it says will give consumers a “level of insight into what’s in their food never before seen in the UK”.
Shares in Tesco closed down 0.3pc at 363.8p.