Tesco Says Horse Meat Test May Push Margin ‘Down a Touch’

Tesco Plc Chief Executive Officer Philip Clarke said the biggest U.K. grocer will absorb the cost of testing products for horse meat and pledged to sell more British meat.

“The total cost of the testing will be borne by Tesco,” Clarke said in an interview with BBC Radio 4’s Today program. “The total cost isn’t that great, but in the scheme of things, our margin will come down a touch.”

Clarke went on a publicity spree ahead of a speech he will deliver before the National Farmers’ Union in Birmingham today. In an Op-Ed in the Sun newspaper, he promised Tesco will source more of its meat from the U.K. For a start, all the chicken Tesco sells has to come from Britain, Clarke wrote.

Tesco was one of the first supermarkets hit in mid-January when one of its value burgers was found to contain horse meat. The scandal has since spread across Europe, forcing supermarkets to remove frozen burgers, lasagnas and other beef products from their shelves. Tesco has dropped some of its suppliers and said it will carry out DNA tests on all its meat.

The company’s technical director Tim Smith told a parliamentary committee on Jan. 30 that the testing could cost the supplier as much as 2 million pounds ($3 million) a year.

Clarke also told the BBC he cannot guarantee that sourcing more meat in the U.K. will not push up prices.

’Price Increases’

“We are going to have to make sure with the farmers that everyone can make a living out of it,” he said. “I hope it doesn’t mean price increases but I can’t stand here today and tell you it won’t.”

That may curb some of Tesco’s revival in the U.K. market, according to Clive Black, an analyst at Shore Capital in Liverpool.

“With its current underperformance, Tesco needs both a more loyal supply and customer base,” he said. “So, in the big scheme of things we do not anticipate a lurch down in U.K. margins, but equally recent events may cap their ongoing expansion to some degree.”

Tesco’s market share in the U.K. grocery market slipped to 29.7 percent in the 12-weeks to Feb. 17 from 30.1 percent a year earlier, data from Kantar Worldpanel showed yesterday. The drop was due to reduced levels of promotions rather than mislabeled beef products, Kantar said.

The retailer’s shares fell 0.3 percent to 363.80 pence in London. They have gained 8.3 percent this year, while the FTSE 100 Index rose 7.3 percent.

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