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Tesco UK resurrection continues

Like so many of its rivals, Tesco UK is keen to emphasise that its growth was driven primarily through volumes, with prices now more than 6 per cent lower than in September 2014.

Thus to witness even such modest like-for-like growth of 0.6 per cent in the UK is a call to celebrate, given the struggles of its main rival Sainsbury’s that is yet to see positive like-for-like growth this financial year.

Tesco shares surged 9 per cent on Wednesday as investors celebrated signs the troubled group has turned a corner. Group like-for-like sales grew 1 per cent,  UK volumes were up 2.1 per cent and transactions by 1.6 per cent.

International volumes rose 3.3 per cent and transactions by 0.3 per cent.

Despite some negative press attention, its fresh food brands – such as the discount Farms lines – have performed strongly, so much so that it has increased own brand space in its larger stores by up to 10 per cent. With the success of Aldi and Lidl, Tesco’s focus on its own brand appears to be well placed, and will be beneficial as consumers focus more on price and quality rather than the origin of their food.

Online grocery sales growth slowed over the half, impacted by the introduction of a £2 charge for its click & collect service – a necessary evil to maintain the viability of the service. Yet, its main competitors have not followed suit, and with Sainsbury’s’ acquisition of Argos making its non-food proposition more appealing, especially to existing Tesco Direct customers, this may continue to impact demand.

Lower prices, a learner proposition, and a commitment to trust and transparency has left Tesco better placed, and increasingly popular with a once disillusioned customer. Its greater focus on the UK business has also led to a robust increase in group operating profit (+38.4 per cent), while its commitment to hit a 3.5-4.0 per cent operating margin by 2019/20 through cutting £1.5 billion of costs is positive, if highly ambitious.

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