British Grocers Cut Jobs Ahead of Rising Costs

Sebastian Rennack
international retail analyst
Aletos Retail

Leading UK grocery retailers will reduce their workforce in response to mounting financial pressures. Sainsbury’s, the country’s second-largest grocer, plans to cut 3,000 jobs as part of a broader £1 billion cost-reduction initiative. Tesco, at the end of January, announced plans to eliminate 400 roles, aiming to streamline operations and improve efficiency. Meanwhile, Morrisons, which lost its position as the UK’s fourth-largest grocer to Aldi two years ago, is accelerating plans to make 200 employees redundant, primarily affecting store-based HR roles.

Industry observers suggest these workforce reductions are largely driven by rising labor costs, fueled by fiscal measures set to take effect in April. The Labour government’s first budget, announced last October, raises employer social security contributions from 13.8% to 15.0%, while lowering the payment threshold from £9,100 to £5,000 per year. Simultaneously, the national living wage for workers aged 21 and over will increase by 6.7% to £12.21 per hour, further adding to cost pressures. These policy changes will significantly impact large employers, particularly in labor-intensive sectors like grocery retail, where payroll costs represent a substantial portion of operating expenses.

Additionally, discounter competition remains a critical challenge. Aldi and Lidl’s aggressive pricing leave no room for margin improvements, making it increasingly difficult for them to compete on price while maintaining higher operational costs. This week, third-ranked food retailer Asda announced it would abandon its price-matching scheme with the German discounters, just a year after its launch. Instead, the retailer will shift focus to its Rollback campaign, emphasizing direct price reductions rather than competitor alignment. The decision signals a shift in strategy as supermarkets seek alternative ways to maintain customer loyalty without engaging in a price war they are structurally ill-equipped to win.

Discounters, by contrast, maintain a cost advantage through leaner operations and a high share of private-label products, allowing them to pass on cost savings to consumers. According to the latest publicly available data for 2023, employment costs as a percentage of group sales (excluding fuel) stood at 13.0% for Tesco, 11.9% for Sainsbury’s, and 13.5% for Morrisons. In contrast, Aldi and Lidl operated with a significantly lower employment cost ratio of 8.1%, underlining their structural efficiency. This gap highlights why discounters have been able to expand market share despite inflationary pressures, as their streamlined business models absorb cost increases more effectively than traditional supermarkets.

The UK labor market remains under strain. Nearly 170,000 retail workers lost their jobs over the past year, marking a 42% increase compared to 2023, according to the Centre for Retail Research. At the same time, retail job vacancies remain 30% below pre-pandemic levels, reflecting a shifting employment landscape where cost control is prioritized over workforce expansion. These trends suggest that ongoing financial strain, combined with competitive pressures from discounters, will continue shaping employment strategies in the sector.