Tesco, like the other supermarket stalwarts, has been struggling to adapt to the change wrought by discounters Aldi and Lidl, but revealed its first sales increase in over four years for the 19 weeks to January 9. Sales at UK stores open over a year rose 1.3% in the six weeks to January 9 – compared to analyst forecasts of a drop of 1-3%. Taken all round, it has been the best week in quite a while for supermarket results, suggesting they might be finally getting to grips with the threat of the German chains – even though there's work to be done.
Chief executive Dave Lewis has faced a monumental challenge since joining the supermarket and finding a £326m black hole in its accounts. The former marketing man has had a difficult task in restoring some confidence in the Tesco brand following its accounting scandal – though it is making some progress according to YouGov's most recent BrandIndex.
Lewis said: ‘Put simply, we put customers at the heart of everything we did and they responded by buying more of what they needed at Tesco.' He urged some caution though, saying there was 'plenty more to do, but we are making good progress and are trading in line with profit expectations for the full year'.
While the Christmas performance was strong, the extensive price cuts also mean making big profits will become a bigger challenge. It’s a similar story at Asda, where boss Andy Clarke pledged to cut prices by £500m this year in a bid to win back shoppers and better combat the German discount giants. It hasn't yet released official results, but it seems Asda suffered a tougher Christmas than most, as sales slumped 3.5% in the 12 weeks to 3 January, according to Kantar Worldpanel.
At Tesco, volumes increased by 3.5% and transactions rose by 3.4% which suggests cut prices and focus on improved product ranges are paying off, for now. The real test will be if Tesco can keep hold of these customers in the long-term. John Ibbotson, director of retail consultancy Retail Vision, said, ‘The festive period aside, progress is achingly slow and there is nothing inevitable yet about the great Tesco turnaround.’
If a slowdown in Aldi and Lidl’s sales growth developed, that could prove a spot of welcome respite for Tesco and an opportunity to build from here to protect its market share, but the resilience of the discounters isn't the only difficulty on the horizon. The boost to like-for-like sales is much better than the analysts predicted, but the question is can Tesco maintain this performance for life, not just for Christmas?