Tesco is aiming to grab an even bigger slice of the grocery market this year after winning its best share in more than a decade over Christmas with strong sales of fresh food and its Finest own-label range.
The supermarket, which has an almost 29% market share, according to Worldpanel by Numerator, said it had taken the most trade from Asda, the UK’s third-largest supermarket chain that has been struggling to turn around falling sales.
However, shares in Tesco dropped by more than 6% on Thursday as analysts said its third-quarter sales performance was behind expectations in all markets including the UK, Ireland, central Europe and at its Booker wholesale chain.
Sales in the UK rose 3.2% in the six weeks to 3 January against hopes of 3.9% while in central Europe sales rose 0.8%, about half the rate expected, and Booker’s sales fell 2.1% against hopes of an 0.8% rise.
Ken Murphy, Tesco’s chief executive, said he was “not even remotely concerned about [the sales] aspect of performance” and said Booker had mostly been affected by poor trading in tobacco products which are low profit.
He suggested a slight slowing of sales growth over the Christmas period compared with the prior three months was due to the company’s efforts to keep prices down. The company said it expected to deliver annual profits of about £3.1bn – the upper end of expectations.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said many had hoped Tesco would be increasing its profit hopes and so had been disappointed.
However, he said: “Tesco looks well-positioned to continue weathering macroeconomic headwinds and soft consumer sentiment. Its enormous scale and strong relationships with suppliers are a key ingredient to its success story.”
Tesco said it had increased the amount of goods sold and won market share, while Murphy said it had “really leant in” on keeping prices down, keeping inflation “materially lower” than the industry level of 4.3% in December outlined by Worldpanel.
Murphy said he believed Tesco could continue to take market share after it had “responded very decisively” to threats of price cutting by Asda last year.
Price competition has stepped up in January as part of an annual attempt to win over shoppers recovering from a festive blowout. Asda this week pledged to drop the cost of everyday products to below those of Tesco’s and other competitors’ loyalty card prices after a tough Christmas when sales fell 4.2%, according to the latest Worldpanel figures.
Under a strengthened “Asda price promise”, it said 2,300 everyday products were priced lower than loyalty card prices at Tesco, Sainsbury’s and Morrisons, including fresh meat, fresh produce, chilled food and core grocery and bakery lines.
Tesco this week promised to keep the cost of 3,000 branded products “consistently low” as part of its new “everyday low prices” campaign.
Murphy said “consumer spending and resilience was good” in the run-up to Christmas and was “not a concern”. His comments came amid fears for the retail sector, which is facing rising costs and lacklustre consumer spending with spare cash squeezed by rising energy, food and tax bills, as well as fears about the wider global political situation and UK economy.
Three retailers, the jewellery brand Claire’s, the cut-price homewares chain the Original Factory Shop and the clothing chain LK Bennett are all set to call in administrators.
Marks & Spencer on Thursday revealed strong food sales growth – up 5.6% at established stores in the three months to 27 December – while clothing sales fell 2.9%.
Murphy said he did not believe the government’s budget announcement in November had any “material impact on customer spend” and that households had continued to aim to have a good time although they were “seeking great value without a shadow of a doubt”.
“Consumer sentiment is mixed. Some households’ budgets are in really good shape and others are counting every penny,” he said.
He said the outlook for 2026 was reasonably positive: “Employment is still resilient and that is a key fact in how consumers feel about the world. What we have seen over Christmas, despite comments to the contrary, is that people spent and bought into celebrating with their family.”
He said Tesco was not concerned about new worker protections in the Employment Rights Act, which are due to come into force later this year, as it had already adopted many of the measures.
However, Murphy called on the government to revamp the business rates system, which he said was unfair. While Tesco will not pay more under the new regime announced in November, Murphy said retailers and hospitality businesses paid more than their fair share.
