Tesco hails ‘powerful combination’ of value and quality for ‘strong’ performance

Supermarket chain Tesco has posted “strong” results for its third quarter and Christmas period, which it ascribes primarily to its focus on value.

A still from Tesco's Christmas ad 2023Tesco is crediting its investment in value for a “strong” performance over its third financial quarter, which includes the crucial Christmas period.

Over the course of the quarter the supermarket cut prices on around 2,700 products, to deliver consumers savings of around 10%. Tesco also hailed the “unrivalled value proposition of Aldi Price Match” as being a key driver of success, which is designed to position the brand on par on price with its discounter rival.

On a call with investors this morning (11 January), Tesco chief executive Ken Murphy said: “Our powerful combination of great value, quality, availability and service means that we head into the new year in great shape to keep delivering for customers.”

The supermarket claims its investment in value has helped it become the “cheapest full-line grocer [measuring against Sainsbury’s, Asda and Morrisons] in the UK” for more than 14 months, according to an “internal measure calculated using the retail selling price of each item on a per unit or unit of measure basis”.

Data from YouGov’s BrandIndex, which measures consumer sentiment around criteria including value and quality, demonstrates that over the four weeks to 10 January Tesco overtook Asda for value perception, and now ranks as the best of the traditional big four on value.

With a net value score of 27, it leads Asda (24.9), Morrisons (17) and Sainsbury’s (14.5). However, it continues to trail discounters Aldi and Lidl, which have net value scores of 53.8 and 49.5 respectively.

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Murphy said: “We look to lead the market among the full-line grocers consistently as we have done over the last 14 months… I don’t think I’ve relaxed on value for a single day in the three and a half years I’ve been in this business.”

Tesco’s focus on value and pricing extended to investment in its loyalty scheme during the quarter. Clubcard – the most popular supermarket loyalty scheme in terms of user numbers – continues to be a focus heading into the new year, with double Clubcard points announced this week for the first time in more than a decade.

Promotion and premium

On the call following the publication of the results, Murphy explained that the supermarket’s promotional activity would continue into 2024. “It’s something we watch very closely because we are quite protective of our price file and making sure that we have as much simplicity and clarity as possible, to be able to maintain our level of everyday low pricing because that’s really important of our overall value proposition.”

He explained that “inevitably” there has been a “drift up across the industry over the last 12 months of volume on deal”. He said that is a consequence of more consumers switching to purchase supermarkets’ own-brand products over the previous year. As a result, he argued that “what you’re seeing is branded suppliers trying to win share back through deeper deals and more frequent deals”.

Like its rival Sainsbury’s, Tesco also noted that its investment in its range of premium own-brand products is paying off. Almost a third of the new products it launched over the quarter were part of the Finest range. This contributed to a 17% sales boost of its premium own-label goods, which equates to more than 18 million consumers purchasing an item.

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Murphy also credited investment in the Finest range for the supermarket “taking share” from premium retailers. “We continue to win customers from premium retailers and we’ve done this now for 17 consecutive periods.”

Murphy also referred to the brand’s investment in staff and in-store capabilities over the Christmas period as having shored up its festive performance, noting: “Our colleagues really stepped up to serve a record number of customers on Christmas Eve when we did nearly 820,000 transactions in just one hour.

“We’re delighted that so many customers voted with their feet and chose Tesco this Christmas, leading to a really strong performance. We’ve been relentless on value because we know just how important it is for everyone.”

I don’t think I’ve relaxed on value for a single day in the three and a half years I’ve been in this business.

Ken Murphy, Tesco

The supermarket reported a strong market share performance, up to 27.9% in the four weeks to Christmas, with “net switching gains for ten consecutive periods” according to Kantar.

It also reported a six week Christmas like-for-like sales increase of 6.8%, which includes growth of 9.2% in the four weeks to Christmas.

Outside its grocery range, the supermarket saw “a slight step back” in the total business, with a 3% sales decline on total non-food products. On the call, Tesco’s CFO Imran Nawaz said the supermarket is “actually in a broadly flat sales number” but that it’s “no bad thing”.

For the quarter online sales were up 11.5% with order numbers and volumes both up year on year. Tesco delivered nearly half a million Whoosh orders – its proprietary rapid delivery brand – in the lead-up to Christmas.

Despite the strong results Murphy said the supermarket is not resting on its laurels when it comes to growing market share: “We think the consumer is in a cautiously optimistic mood. That said, it’s a battle for every basket.”