Tesco sees sales growth after focus on value and rise in premium shoppers
Tesco has said a focus on value amid the continuing squeeze on shoppers’ budgets has paid off through a rise in half-year profits.
The UK’s biggest retailer raised its annual guidance on the back of market share gains versus major rivals over the six months to 24 August.
It also credited higher demand for its Finest premium ranges, which were almost 15% up on the same period a year ago.
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Total sales excluding fuel were 4% up at £31.5bn – though its UK like-for-like sales growth slowed in the second quarter.
Nevertheless, its preferred measure of retail adjusted operating profit was up 10% at £1.56bn.
The company said that it now expected the annual figure to come in about £2.9bn.
That was up from a £2.8bn prediction earlier that would have been flat on its previous financial year.
Tesco said its focus on delivering value on everyday goods, aided by its Clubcard loyalty and Aldi price-matching schemes, had driven volume growth over the period.
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It noted industry data showing its market share at its highest level since January 2022 at 27.8%.
Tesco said that Clubcard now covered 23 million households, claiming it was saving them up to £385 off their annual grocery bills.
It had cut prices, the company said, on more than 2,850 products over the six months by an average of about 9%.
Ken Murphy, the chief executive, said the company was “gearing up for a good Christmas” as he was hopeful over consumer demand.
He told investors: “We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result.
“We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures.
“The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years.”
Discounters have been eating into the market shares of the likes of Tesco, Sainsbury’s, Morrisons and Asda for almost 15 years.
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The cost of living crisis, sparked by the energy-driven surge in inflation in 2022, forced the big four to invest more in prices.
While Asda and Morrisons, which are now both privately owned, have struggled to keep pace, Sainsbury’s and Tesco’s market shares have proved more resilient.
The Sainsbury’s boss Simon Roberts recently warned that consumer confidence would be unlikely to pick up until the government sets out its tax and spending plans in the budget later this month and interest rates fall further.
Recent surveys have shown confidence plunged after Prime Minister Sir Keir Starmer’s warnings about the
state of the public finances and the likely need for tax increases.
Tesco shares rose by almost 2% at the open.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “Tesco’s strategy continues to deliver, with rising revenues and strong profits growth underpinned by increased market share – which now stands at nearly 28%.
“The supermarket group is performing very well in a highly competitive sector – particularly faced with inflationary pressures – built on a foundation of a simplified business model, disciplined capital structure, and investing for growth.
“With the outlook in Tesco’s markets potentially looking more favourable, the group is in a very strong position to protect its market share through its loyalty programmes – namely Tesco Clubcard – and high levels of customer satisfaction.
“The sale of its banking operation and ample free cashflow also provide Tesco with plenty of dry powder to make its next big move”, she concluded.
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