Tesco has reported strong Christmas trading figures and revealed that some shoppers are expressing cautious optimism about 2023, with food inflation likely to ease in the second half. However, the UK’s leading grocer expects a tough start to the year with it focusing on offering better value deals in January to support cash-strapped consumers.
Over the six weeks to 7 January, Tesco’s like-for-like sales in the UK climbed 7.2%, boosted by inflation and families splashing out after two years of pandemic restrictions. Domestic sales during the company’s third quarter to 26 November rose 4.3%.
Tesco stated that market share gains had been driven by its focus on value and quality, with particular strength in fresh food (+8.1%). Initiatives such as its Aldi Price Match and Clubcard Prices promotion helped it combat the discounters, with volumes on its Low Everyday Prices range up 7.4% following the launch of a price lock commitment in October.
The group noted that it had continued to see good growth across large stores and convenience outlets, whilst online sales returned to growth with sales 59% higher than pre-pandemic levels and participation stabilising at around 13%.
Booker continued to bounce back from the effects of the pandemic when its catering supply business took a major hit from restrictions in the hospitality sector. The wholesaler’s like-for-like sales were up 11.7% over Christmas and 9.3% during the third quarter. The period saw the opening of the group’s 4,000th Premier outlet, with the symbol group now covering 6,809 stores across the Premier, Londis, and Budgens brands.
In Ireland, Tesco’s like-for-like sales increased by 6.4% during Christmas and by 5.3% in the quarter. The group noted that it grew its market share by 46bps after a “strong response” to its Clubcard Prices promotion and a 9.6% jump in online sales.
In Central Europe, Tesco’s like-for-like sales rose 8.7% during Christmas and by 12.3% in the quarter, despite lapping strong performance last year.
“I’m extremely proud of the way Tesco has stepped forward to help customers dealing with tough times this Christmas,” said Chief Executive Ken Murphy.
“We go into the new calendar year with good momentum, and I am confident we can continue to maintain our competitiveness and deliver a strong performance relative to the market despite the challenging conditions ahead.”
Murphy told reporters this morning that Tesco was more focused this January on value “because we think that’s what’s important to customers”, adding that suppliers supporting its new year price lock campaign are “100% behind” the move.
He noted that people are both trading down from brands to Tesco’s own label value range, and choosing to dine at home with its premium Finest range as a substitute for takeaways or restaurant meals.
Asked about inflation, he said: “We’re not sure it’s peaked just yet. We would hope that by the middle of the year it will have peaked, and then we will see it come down the other side.”
Murphy also suggested that some shoppers are more optimistic about 2023 despite the cost-of-living crisis. “In terms of trends for 2023, we’re seeing customers express sentiments of cautious optimism,” he said this morning.
“Customers are weathering the storm, we’re in a full employment market, I think the sense is that maybe the recession will be a little shallower than maybe people were thinking, so there’s a little bit of cautious optimism.”
The group maintained its forecast for 2022-23 retail adjusted operating profit of between £2.4bn and £2.5bn, down from the £2.65bn earned in 2021-22.
Analysts welcomed the solid trading update but Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, suggested Tesco’s aggressive pricing could hurt profit margins.
“For all the progress, there is an elephant in the room,” she said. “A large proportion of success is coming down to discounting. Things like Aldi Price Match and price freezes are very successful tactics, but can spell bad news for margins.
“Supermarkets had only recently rediscovered their footing before the pandemic, following years of margin degradation from an all-out price war.
“Soaring inflation and the pressure on customer spending power means history is repeating itself. The tug of war between pricing and volumes is clearly producing a good result, which is why profit expectations have been reiterated, but it’s still hardly an ideal state of affairs for the big names in industry.”
NAM Implications:
- While every little (Aldi Price Match and Clubcard Prices promotion) helped it combat the discounters…
- …Aldi & Lidl made share gains.
- That said, customers trading down to Tesco value O/L…
- …and more dining at home…
- ..will impact brands.
- As Tesco moves thru 2023 with more of the same…
- …best compare your Tesco business point by point vs these stats.
- And ensure you are getting your fair share of Tesco gains in the current market…
