Tesco PLC (LON:TSCO) took the fight to Aldi and Lidl over the all-important Christmas period as it significantly outperformed its ‘Big Four’ rivals.
Like-for-like sales in the supermarket giant’s UK stores climbed 2.2% in the six weeks to 5 January as it responded to the German discounters’ cheaper prices with an “increasingly competitive offer” of its own.
READ: Two former Tesco bosses cleared of fraud
The growth compares with a 0.6% rise in sales at Wm Morrison Supermarkets PLC (LON:MRW) and a 0.4% fall at J Sainsbury plc (LON:SBRY), although the latter was over a longer period.
Including its Booker wholesale business, which enjoyed a strong festive season, Tesco’s UK like-for-like sales rose 2.6% over Christmas.
For the third quarter as a whole, which doesn’t include Christmas and New Year, sales rose 0.7%, partly reflecting what Mike Ashley had described as the worst November for retailers “in living memory”. Including Booker, UK sales rose 1.9% in the 19 weeks ended 24 November.
“In the UK we delivered significant improvements in our competitive offer and this is reflected in a very strong Christmas performance which was ahead of the market,” said chief executive Dave Lewis.
“We have more to do everywhere but remain bang on track to deliver our plans for the year and as we enter our centenary we are in a strong position.”
Owns brands and promotions key to growth
One of the big sales drivers was the popularity of its ‘Exclusively at Tesco’ own brands – its revamped, direct response to Aldi and Lidl’s discounted prices.
Promotions on vegetables, lamb and beef joints and wine also helped to boost sales.
Tesco posted a 7.7% rise in third-quarter general merchandise, somewhat of a surprise given the struggles reported by Sainsbury’s Argos division on Wednesday.
The outperformance continued over Christmas, with GM sales up 3.8%, aided by good sales of its Fox & Ivy homeware and “particularly strong” demand for its womenswear.
Tesco the ‘big Christmas winner’
“One has to say that over this key trading period Tesco has emerged the major retail winner,” said Markets.com analyst Neil Wilson.
“Q3 like-for-likes in core UK were rather soft, up a meagre 0.7% year on year versus 2.3% average over the prior two quarters. This shows November was softer, but Christmas came to the rescue as Tesco delivered on all fronts over the period.
“The Booker acquisition continues to look to have been a smart move, with growth there of around 10% helping to boost group performance.”
Wilson added: “Tesco under Dave Lewis is not the same business it used to be and this is a good thing for investors.”
Best of the Big Four, but nowhere near Aldi and Lidl
Analysts had expected Tesco to be the top performer among the big British supermarket chains, with UBS saying its “competitive offer is as sharp as it’s been in years”.
Still, the rise in sales looks anaemic when compared to Aldi and Lidl, which achieved growth of 10.4% and 9.4 respectively over Christmas.
The pair has brought on a sector price war in recent years and their lower prices have helped them to continually grab market share from their more established peers.
Tesco, Sainsbury’s, Asda and Morrisons have responded by slashing their own prices in a bid to keep customers coming through the door.
The Christmas updates don’t contain any profit figures, but analysts expect margins, which are already pretty thin, to come under more pressure this year.
Tesco was up 0.8% to 213.5p in late-afternoon trading.
--Adds share price and analyst comment--