UK supermarket trading updates due this week are expected to confirm a solid Christmas period for the sector, with Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY) once again emerging as the clear winners, according to analysts at Citi and Deutsche Bank.
Tesco reports on Thursday, covering its third quarter and the key six-week Christmas period. Citi expects like-for-like UK sales growth of about 4.2% in the quarter, followed by 3.9% over Christmas, driven by continued strength in premium own-label ranges.
Tesco has invested heavily in trading shoppers up through its Finest range, a strategy that appears to be paying off as consumers become more selective rather than simply trading down.
While December sales growth may have softened slightly compared with earlier in the quarter, Deutsche Bank points to Tesco’s market share hitting a decade high of 28.7% over the latest 12-week period. Much of that gain appears to be coming at the expense of Asda, which continues to lose ground after a prolonged period of disruption.
Sainsbury’s, which reports a day later, is expected to show an even stronger festive performance.
Citi forecasts grocery sales growth of 5.3% in the third quarter, ahead of consensus expectations.
Analysts highlight product innovation within the Taste the Difference range as a key driver, helping Sainsbury’s attract higher-spending customers during the Christmas shop.
Deutsche Bank says Sainsbury’s sales momentum accelerated into December, suggesting it may have outperformed peers over the peak trading weeks. That said, the group’s Argos general merchandise business remains a drag, limiting overall retail growth outside food.
Both banks note that promotional intensity increased across the sector in December, as supermarkets competed aggressively on price. However, the impact on margins may be less severe than feared. Food price inflation, modest volume growth and support from suppliers are all expected to help absorb the cost of sharper promotions.
The key theme emerging is consolidation. Tesco and Sainsbury’s continue to take share in a highly competitive market, reinforcing their scale advantages.
Citi has lifted its earnings forecasts for both groups and reiterated 'buy' ratings, reflecting confidence that strong trading can be sustained even as promotional pressures remain elevated.