Following today’s release of Tesco’s figures for the 26 weeks ending 26th August 2023; Joe Dawson, retail analyst at GlobalData, a leading data and analytics company, offers his view: “The cost-of-living crisis continues to put pressure on consumer finances, and Tesco has reacted well, maintaining low prices in line with discount competitors and passing on savings to shoppers. The UK’s largest grocer reported group sales growth of 8.9% for the 26 weeks to 26 August 2023, outperforming Waitrose & Partners and Morrisons which reported less than 5% sales growth for a similar period earlier in the year. While high food inflation was a significant driver of sales growth in H1 FY2023/24, Tesco has been the most effective of the Big Four when it comes to keeping up with Aldi and Lidl, with a three-pronged value strategy of exclusive Clubcard Prices, Aldi Price Match and Low Everyday Prices all contributing to a 10.6% increase in food sales for the period. Consequently, supported by business-wide cost savings, Tesco has raised its profit guidance, with it now expecting to see between £2.6bn and £2.7bn retail adjusted profit for FY2023/24 as it extends its appeal to price-conscious shoppers.
“The evolution of the Clubcard scheme has been a triumph for Tesco, with most competitors now following suit in providing members-only discounts. The improvements to its app and further initiatives to encourage sign-ups, such as free kids’ meals for members over the summer holidays, have been key to growing penetration for the scheme, with 80% of UK shoppers participating. Lower prices and a tiered private label offer have attracted those steering clear of eating out, with the introduction of the Premium Meal Deal to entice shoppers trading away from pricier supermarkets.
“Sales in convenience formats grew 5.1%, while large stores performed especially well, with sales up 9.3%, helped by seasonal occasion-based deals and greater value offers. Tesco has also been successful in implementing its “Save to Invest” strategy, bringing down costs by removing unprofitable deli counters and increasing efficiency in stores with self-checkout machines and an optimised management structure. Further investments in price reductions on key lines at convenience stores and refurbishments at large stores to improve the customer experience and raise availability should maintain this momentum in the second half.
“The opening of three new urban fulfilment centres (UFCs) since February 2023 has improved the grocer’s online order capacity and helped to boost online sales by 10.0% to £3.0bn. With 1,414 stores now offering Tesco’s Whoosh rapid delivery service to complement the regular online proposition, the grocer is well placed to cater to consumer demand over the golden quarter, as shoppers turn to online to cater for festive events.
“As food inflation slows in the second half of the year, Tesco is set to protect its market share gains as consumers continue to seek out good quality products at lower prices. Clubcard promotions with deep discounts and innovative ranges will be imperative to being a first choice for consumers over the upcoming festive period.”
