Tesco Posts Strong Sales Growth as Price Battle Intensifies

Tesco has exceeded market expectations with a strong sales performance in the first quarter, reporting like-for-like sales growth of 5.1% in its UK operations. For the 13 weeks ending 24 May, the supermarket giant achieved revenues of £12.3 billion, surpassing analysts’ projections of 4.6% growth. The group’s overall revenues, including its operations in Ireland, Central Europe, and Booker wholesale, climbed by 4.6% to reach £16.3 billion.

Ken Murphy, Tesco’s Chief Executive, said the robust results were driven by strong demand for fresh produce such as cherry tomatoes, cucumbers, and berries, alongside solid performance in the retailer’s F&F clothing range. The clothing division benefited from an extended product range and its relaunch online. Murphy highlighted that Tesco’s commitment to shielding customers from price inflation, through initiatives like the Aldi price match campaign and Clubcard promotions, has helped maintain customer loyalty and market share.

Murphy noted that Tesco’s inflation rate remained below the industry average of over 3%, as the company absorbed cost pressures in key categories such as cocoa and poultry. Echoing this sentiment, analysts at RBC described Tesco as “a best-in-class player in the UK food retail space”, acknowledging its effective strategies to grow market share despite intensifying competition.

Rapid delivery services also featured prominently in Tesco’s growth. The retailer’s Whoosh platform, which now operates from over 1,600 stores, recorded a strong quarter without negatively affecting in-store purchases. Despite these successes, the group maintained its adjusted operating profit guidance in the range of £2.7 billion to £3 billion for the financial year, resisting short-term optimism in light of intense market competition.

Murphy underlined the aggressive nature of the market, stressing that heightened promotional activity among rivals like Asda has created significant challenges. While analysts have raised concerns about a potential sector-wide price war, Murphy dismissed the notion of any immediate shifts in competitiveness, crediting Tesco’s steady performance to careful cost and pricing strategies.

Addressing broader challenges, Murphy urged the government to reconsider additional tax pressures on the retail sector. He outlined the significant financial burdens introduced in recent budgets, citing increases in National Insurance and the National Living Wage. Tesco also utilised its voice to push for more protection against retail crime, arguing for legislation extending to delivery drivers. The company has invested in measures such as increased security guarding and a centralised hub to assist police investigations into prolific offenders.

Tesco’s admiration among analysts reflects a confident start to the year amid constrained profit guidance, signalling an acknowledgement of both its market dominance and the difficulties posed by an unsettled retail landscape.