Christmas Success for Tesco's Fresh Foods

Published on: 6 Feb 2017

Tesco saw a rise in market share for the first time in 5 years as a result of Christmas shopping.

Their sales are ahead of City expectations and could signal a return to strength for the retail giant.

Christmas focus on fresh food

Christmas TurkeyTesco’s fresh food offerings seem to have tempted customers back over the festive season. The retailer has grown its market share over groceries rivals for the first time in 5 years.

The last quarter was a big success for Britain’s biggest supermarket chain, as it gives them a large boost in profits. It looks like their profits will be at least £1.2 billion ahead of expectations, and may even be higher.

Dave Lewis, who has been in charge since 2014’s accounting scandal which saw the biggest loss in the history of UK corporations, is positive about the company’s future. He described this year as the “third successful Christmas against increasingly tough comparisons”.

Like for like sales in the 13 weeks to November 26 rose 1.5%, while fresh produce saw a 1.8% rise. Their market share rose from 28% to 28.3% in the 12 weeks up to December 4th. More recent data suggests they may fractionally slip back, although this relates to sales after the 4th.

Sales up to January 7th rose by 0.7% on like for like data. The slip is being blamed on the decision to cut some promotions on the Club Card scheme. The decision comes as the company aims to slow down their heavy discounting and stick to a future policy of more solid prices. The move hurt general sales immediately, with hopes that the overall result will be higher profits in the long run.

Nicholas Hyett, analyst at Hargreaves Lansdown, said: “There are signs that the giant might be stirring once again, but a slowdown over the Christmas period will leave many investors worrying whether the group can achieve sustained growth.”

Positive outlook

Supermarket 3Dave Lewis, however, is still confident that things are looking up. “We are very encouraged by the sustained strong progress that we are making across the group,” said the Tesco boss. "In the UK, we saw our eighth consecutive quarter of volume growth and delivered a third successful Christmas."

Rival Morrison’s are however making faster progress. They grew above expectations over Christmas, while Tesco were only able to meet expectations for the later part of the month.

“I see lots of predictions about what might happen during the course of the year, but as we speak today we wouldn't be able to point to a significant change in pattern,” he said. “Inflation is not something we welcome... The pressure is there and in a number of categories it’s been too significant to fully offset. Our commitment is to keep doing everything we can to minimise the impact.”

Lewis has also been battling with the supply chain to try to keep prices low for shoppers. This has been most apparent in a very public battle with Unilever, the manufacturers of products such as Marmite. The company wanted to hike their prices because of import costs rising thanks to the weaker pound following the Brexit vote. Tesco, however, stood their ground.

Lewis says that, while he always collaborates with suppliers on discussions, he likes to find out whether or not a price raise is justified. This helps him to decide whether the increased price should be accepted to the detriment of customers, or whether there should be more negotiations.

The upbeat message from Tesco has been somewhat compromised by the announcement that they are axing 1,000 jobs from their distribution network.