Tesco, the UK’s largest supermarket chain, is setting its sights on an even greater market share this year after enjoying its best Christmas trading in over a decade. The company reported strong sales of fresh food and its premium own-label range, leading to a near 29% market share, according to data from Worldpanel by Numerator.
The supermarket’s performance was particularly noteworthy as it managed to take significant trade from Asda, the UK’s third-largest supermarket, which has been struggling to turn around falling sales. However, Tesco’s shares dropped by more than 6% on Thursday as analysts said the company’s third-quarter sales performance fell short of expectations across its markets, including the UK, Ireland, central Europe, and its Booker wholesale division.
In the six weeks to 3 January, Tesco’s UK sales rose 3.2%, falling short of the expected 3.9% increase. Sales in central Europe grew 0.8%, about half the anticipated rate, while Booker’s sales declined 2.1% against hopes of a 0.8% rise.
Despite the slight slowdown in sales growth over the Christmas period, Tesco’s chief executive, Ken Murphy, expressed confidence in the company’s performance, stating that he was “not even remotely concerned” about the sales aspect. He attributed the slight dip to the company’s efforts to keep prices down, which he said had resulted in inflation being “materially lower” than the industry level of 4.3% in December.
Murphy said Tesco was well-positioned to continue weathering macroeconomic headwinds and soft consumer sentiment, thanks to its scale and strong relationships with suppliers. The company expects to deliver annual profits of around £3.1 billion, at the upper end of expectations.
Aaaron Chiekrie, an equity analyst at Hargreaves Lansdown, noted that while some had hoped Tesco would increase its profit guidance, the company still appears well-placed to navigate the challenging retail environment.
Tesco’s strong Christmas performance came amid concerns for the broader retail sector, which is facing rising costs and sluggish consumer spending as households grapple with increasing energy, food, and tax bills. Several high-street retailers, including Claire’s, the Original Factory Shop, and LK Bennett, have entered administration.
However, Murphy remained cautiously optimistic about the outlook for 2023, citing resilient employment levels as a key factor supporting consumer sentiment. He acknowledged that while some households were in “really good shape,” others were “counting every penny,” but said Tesco had seen consumers spending and “celebrating with their family” over the festive period.
The supermarket chain is also aiming to maintain its competitive edge, with plans to keep the cost of 3,000 branded products “consistently low” as part of a new “everyday low prices” campaign. This comes as Asda has pledged to price 2,300 everyday products below Tesco’s and other competitors’ loyalty card prices.
Overall, Tesco’s strong Christmas performance and its ambitious plans for the year ahead suggest the company is well-positioned to continue its market dominance in the UK grocery sector.
