Tesco fights to stay ahead of Aldi as UK sales fall 1.5% year-on-year

Tesco shares slid 0.4% to 248.6p in early morning trading on Friday after the supermarket announced a 1.5% fall in like-for-like UK sales for Q1 2022-2023 in its latest trading update.

The Big 4 grocer further mention that sales in the Republic of Ireland dropped 2.4% to £612 million year-on-year.

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Tesco reported an overall group retail sales growth of 2% since the last year, however, on the strength of its Booker and central Europe sectors.

The supermarket confirmed a Booker sales rise of 19.4% to £2.1 billion, with catering sales up 57.4% on the addition of 13,000 new customers, and a retail like-for-like sales increase of 2.3%.

Meanwhile, sales in central Europe grew 9% to £976 million, with continued growth in market share across all three regions of 0.4% and the completion of 17 malls and one retail park driving proceeds of £200 million as mentioned in April 2022.

Tesco bank sales were up 38.8% due to the acquisition of Tesco Underwriting, alongside a recovery in card sales and travel money.

Aldi gains ground

Tesco announced a market share growth of 0.37% in the UK, with outperformance on value and volume, and raised its overall distribution of Aldi Price Match and Low Everyday Prices products by 19% since Q1 2021-2022.

However, the supermarket has lost 0.5% of its market share in the year-to-date, which seems to be getting picked up by discounters including Aldi, which has gained 1.3% market share since the start of the year.

“Aldi Price Match will become even more important as long as customers are forced into real discount mode… it’s clear that keeping its ranges wide and its prices low has to be the strategy now,” said Freetrade senior analyst Dan Lane.

“But that’s far easier said than done, and that changing customer behaviour is also revealing which tills they’re flocking to.”

“Make no mistake, inflation-induced belt tightening will have a few more households heading to a German discounter. All of the big four have bled market share this year while the challenger grocers have gained, this could only be the start too.”

Tesco CEO Ken Murphy added: “Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market.” 

“Our material and ongoing investment in the powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices is removing the need for customers to shop elsewhere.”

“Although difficult to separate from the significant impact of lapping last year’s lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment.” 

Inflation bites

Murphy noted the impact of rising inflation, which is set to hit 11% in October, commenting: “Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible.”

The additional 15% surge predicted for food prices this summer has also served to put customers on edge, with Tesco scrambling to keep consumers in stores.

“Tesco is attempting to be the last of the big UK supermarkets to pass on inflation costs to customers as it looks to gain market share and use its scale to manage costs. It is also expanding the number of lines in its successful Aldi price match campaign,” said Third Bridge retail research lead analyst Alex Smith.

“Tesco’s market leadership gives it more bargaining power to negotiate down prices with suppliers. However, its relatively limited product range and fragile reputation means it can’t push negotiations too far.”

The retailer added that its outlook for profits and cash remained unchanged at the current time.

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