Tesco's Dominant Performance Fueled by Winning Blend of Value and Quality
Tesco celebrates a robust performance in Q3 and during the Christmas season, attributing its success to a compelling blend of value and quality
Tesco has attributed its strong performance in the third financial quarter, including the crucial Christmas period, to its investment in value.
During the quarter, the supermarket reduced prices on approximately 2,700 products, providing consumers with savings of about 10%. Tesco also emphasized the importance of the "unrivalled value proposition of Aldi Price Match" as a significant factor in its success, aiming to position the brand competitively on price with its discount rival.
During a call with investors today (January 11th), Tesco's CEO Ken Murphy stated, "Our strong blend of affordability, quality, availability, and service positions us well to continue meeting the needs of our customers in the new year." Tesco asserts that its focus on value has enabled it to maintain its position as the "most affordable full-line grocer in the UK" compared to Sainsbury's, Asda, and Morrisons for over 14 months, based on an internal measure using retail selling prices per unit.
According to data from YouGov’s BrandIndex, which assesses consumer sentiment based on factors like value and quality, Tesco has surpassed Asda in terms of value perception over the four weeks leading up to 10 January. This places Tesco at the top of the traditional big four in terms of value, with a net value score of 27. Asda follows closely behind with a score of 24.9, while Morrisons and Sainsbury’s lag further behind with scores of 17 and 14.5, respectively. However, Tesco still falls short of discounters Aldi and Lidl, which have net value scores of 53.8 and 49.5, respectively.
Murphy emphasized the importance of maintaining market leadership among full-line grocers and emphasized the company's unwavering focus on value. Additionally, Tesco's commitment to value and pricing was reflected in its investment in the loyalty scheme, with a focus on the popular Clubcard program and the announcement of double Clubcard points for the first time in over a decade.
Promotion and premium
During the post-results call, Murphy detailed that the supermarket's promotional efforts are set to extend into 2024. "It's something we monitor closely as we value the integrity of our pricing strategy and strive for simplicity and transparency to uphold our commitment to everyday low pricing, which is crucial to our overall value proposition."
He stated that there has been a noticeable increase in deal volume across the industry in the past year, attributed to more consumers opting for supermarket own-brand products. This has led to branded suppliers offering deeper and more frequent deals in an effort to regain market share. Tesco, like Sainsbury's, has seen success in its investment in premium own-brand products, with almost a third of new products falling under the Finest range. This has resulted in a 17% increase in sales of premium own-label goods, with over 18 million consumers purchasing these items.
Murphy attributed the supermarket "taking share" from premium retailers to the investment in the Finest range. He also noted that the brand's investment in staff and in-store capabilities over the Christmas period had bolstered its festive performance, with a record number of customers served on Christmas Eve.
"We are thrilled that numerous customers chose Tesco this Christmas, resulting in an impressive performance. We have been unwavering in our commitment to value, recognizing its significance to all."
Ken Murphy, CEO of Tesco, announced that the supermarket had a strong market share performance, reaching 27.9% in the four weeks leading up to Christmas. Kantar reported that Tesco had experienced "net switching gains for ten consecutive periods."
The supermarket also saw a 6.8% increase in like-for-like Christmas sales over six weeks, including a 9.2% growth in the four weeks leading up to Christmas. However, there was a 3% decline in total non-food product sales, resulting in a slight setback for the business overall. During the call, Tesco's CFO Imran Nawaz noted that the supermarket's sales numbers are essentially flat, but considered it a positive outcome.
The online sales for the quarter increased by 11.5%, with both order numbers and volumes up from the previous year. Tesco fulfilled almost half a million orders through Whoosh, their rapid delivery brand, in the weeks leading up to Christmas. Despite the positive results, Murphy emphasized that the supermarket is not complacent when it comes to expanding its market share. He stated, “We believe that the consumer is cautiously optimistic. Nevertheless, we are aware that competition for every customer is fierce.”
