UPDATED: Tesco gets its '˜customer mojo' back
TESCO has reported its strongest UK quarterly sales performance in seven years, in the face of rising inflation.
UK like-for-like sales in the first quarter of the year rose 2.3 per cent, driven by a 2.7 per cent comparable sales growth in food.
The figures represent the sixth consecutive quarter of positive sales momentum and prompted one analyst to claim that Tesco has got its “customer mojo” back.
Tesco said sales were boosted by its fresh food offering, which saw “significant market outperformance”.
Chief executive Dave Lewis said: “In tough market conditions, we have stayed true to our commitment to helping customers, working closely with our supplier partners to keep prices low.
“Customers have responded by doing more of their shopping with us and as a result we continue to grow volumes, particularly in fresh food.”
The group said it is working with suppliers to protect customers from inflationary pressures and pledged shoppers will see further price reductions, focused on fresh food and healthy products.
It comes after official figures earlier this week showed inflation surged to 2.9 per cent in May, which was higher than expected.
Mr Lewis added: “This is a good start to the year, with our sixth consecutive quarter of positive like-for-like sales growth across the group.
“We are confident in our plans to create long-term, sustainable value for our key stakeholders and to deliver on the ambitions we have set out.”
Like-for-like sales across the group rose 1 per cent, although Tesco was held back by a 3 per cent fall in comparable sales at its international division.
In the UK, fresh food volumes grew by 1.6 per cent in the quarter after the grocer reduced prices on a range of fruit and vegetables and more than 200 other healthy products.
John Ibbotson, an analyst from Retail Vision, said: “Tesco has delivered a corker in its core UK market. Food, and fresh food in particular, is firing on all cylinders and that’s a huge shot across the bows for its competitors, in particular Morrisons.
“With inflation rising sharply, Tesco has used its immense buying power to keep prices lower for its customers. Against this inflationary backdrop, the numbers are all the more remarkable.
“But the toxic combination of rising inflation and low wage growth remains a major threat.
“As inflation continues to erode people’s spending power, more and more of Tesco’s customers could be driven back to the discounters, Aldi and Lidl.
“What’s particularly encouraging is that Dave Lewis is acutely aware of this and knows that nothing can be taken for granted.
“Tesco’s looming merger with Booker could prove a distraction, especially as the Competition and Markets Authority starts its review, but if it goes ahead the deal will further cement Tesco’s comeback.”
Phil Dorrell, a partner at Retail Remedy, described the update as a solid set of like-for-likes, which fly in the face of struggling volume sales for UK grocers.
He added: “Tesco are on a roll getting their customer mojo back; stores are more engaging and comparatively better value than they were a year ago.
“Customer-centric decisions have helped grow sales six quarters on the bounce. For Lewis, fixing the operation is not enough however and he is hell-bent on regaining the power of previous decades, and realises corporate relationships is the key.
“Tesco will also be banking on a footfall boost with the new Dixons Carphone concessions creating a ‘destination’ in store for electricals.
“That footfall might be walking straight past Tesco’s own electrical offer however, so measuring the performance of both departments will be telling.”
Britons have been hit by a rise in inflation, caused in large part by the fall in the value of the pound since last year’s vote to leave the European Union, and by a slowdown in wages growth.
Tesco, which has a share of around 28 per cent of the UK grocery market, said it is not passing on as many cost increases to shoppers as its competitors.
By purchasing a tighter range of goods and working more closely with its suppliers, Tesco is able to exploit its huge purchasing scale.
Bernstein analyst Bruno Monteyne said Tesco’s inflation number “reflects working together with suppliers, not margin compression.”