Tesco’s warning that shoppers are buying less, switching to cheaper products and shopping more often underlines the tough market it faces.
The grocer itself described the situation as "incredibly challenging", with consumer confidence plummeting, inflation soaring and real wages being squeezed.
“We are seeing higher frequency shopping trips, so there's an elevation in the number of shopping trips, we are seeing basket sizes coming down a little bit," Ken Murphy, chief executive told reporters this morning after a downbeat first-quarter update.
Investors were more sanguine, with the share price ticking up a little to 250p on reflection of the numbers and perhaps that profit guidance for the year was not changed and that the shares are already down 14% this year.
Tesco UK sales drop as customers face 'unprecedented increases in the cost of living'
Tesco has also been outperforming its big three rivals recently but the real worry is the discounters Lidl and especially Aldi, where the supermarket giant is already matching prices on 650 products to keep it at bay.
Dan Lane, a senior analyst at trading app Freetrade wrote: “Ken Murphy will hope his cocktail of Aldi Price Match, Low Everyday Prices and Clubcard Prices will keep customers around but it’s the first of that list that’s key now.
“Aldi Price Match will become even more important as long as customers are forced into real discount mode.
“Tesco experimented with its own cheap chain in Jack’s and it just didn’t work, so it’s clear that keeping its ranges wide and its prices low has to be the strategy now.
“But that’s far easier said than done, and that changing customer behaviour is also revealing which tills they’re flocking to.”
Lane added that in 2022 so far Tesco has lost 0.5 percentage points of market share, while Aldi has gained 1.3 (Kantar) and could well overtake Morrisons as the nation’s fourth favourite grocer.
“Make no mistake, inflation-induced belt-tightening will have a few more households heading to a German discounter.
“All of the big four have bled market share this year while the challenger grocers have gained, this could only be the start too.”