Tesco (LON:TSCO) management said customers responded well to continued investment in “value, quality, and service” as the grocer reported group like-for-like sales growth of 2.9% over the 19-week quarter-three and Christmas trading period, including 3.7% growth in the U.K. On the company’s trading update call, CEO Ken Murphy said U.K. customer satisfaction improved and market share reached its highest level in more than a decade after “32 consecutive periods of gains.”
Murphy said the company delivered Christmas trading “in line” with its plan, citing “over 2 billion products” through tills and more than £6 billion of sales in the four weeks to Christmas Eve. He also highlighted staffing and operational steps taken for peak demand, including hiring more than 28,000 additional colleagues and adding more than 100,000 extra online delivery slots in the week before Christmas, supported by AI-powered scheduling tools.
Fresh food and new products drive U.K. performance
For seasonal ranges, Murphy said Tesco introduced 340 new and improved own-brand Christmas products, including 180 under the Finest label. He also emphasized value initiatives aimed at households under pressure, including a fresh Christmas dinner for a family of six for under £10, which he said worked out to £1.59 per person and was “even better value than last year.”
Murphy added that Tesco’s rate of inflation eased through the Christmas period and remained “materially behind the market.” In Q&A, management said the overall market saw both easing inflation and a step down in volume over Christmas, though Tesco said it outperformed on volume growth and saw volume market share gains.
Finest growth, premium demand, and shifting consumption patterns
Customers “continue to embrace Finest,” Murphy said, with U.K. sales growth of 13% and a 22% increase in the Finest party food range. He cited “Christmas centerpieces” such as turkey crowns and Chef’s Collection Beef Wellington, along with curated gifting ranges and award-winning items. Among the seasonal volumes mentioned on the call, the company sold around 21 million Finest pigs in blankets and 2.5 million bottles of Finest Prosecco.
Management also pointed to changing preferences in alcohol and proteins. Murphy said Tesco sold almost 250,000 bottles of the low-alcohol option Nozeco, and noted that while turkey remained popular, some customers opted for alternatives, with sales of beef joints up 29% as the most popular substitute. In response to an analyst question, Murphy said there is “no doubt” low and no alcohol is rising and noted a broader consumer push toward healthier lifestyles, including an impact from GLP-1 drugs, while emphasizing Tesco’s strong fresh food and high-protein product positioning.
Online growth, Whoosh expansion, and Clubcard engagement
Online was “our fastest-growing channel,” Murphy said, with growth of 11% across the 19 weeks and the company’s “biggest online Christmas,” including its two busiest days ever. During the week leading up to Christmas, Tesco delivered on average “two orders every second,” according to Murphy.
Rapid delivery service Whoosh also grew, with sales up 47% and more than 250,000 customers trying it for the first time. Murphy said Whoosh expansion continued in Ireland, where it is now available in Dublin, Galway, and Cork.
Tesco also leaned on Clubcard for value delivery and engagement. Murphy cited “thousands of Clubcard prices per week” and said the company offered more personalized rewards, including “gamified experiences” through Clubcard challenges.
Pricing strategy, promotions, and supplier funding
During Q&A, management repeatedly returned to pricing investment and the competitive environment. Executives said Tesco’s price position strengthened “versus the market generally,” and that technology investments have improved the “sophistication” of pricing decisions by focusing on lines that matter most to customers.
Earlier in the week of the call, Tesco launched a new commitment to “everyday low prices” on over 3,000 branded products. This sits alongside its Aldi Price Match on more than 650 lines and ongoing Clubcard prices. Management described the move as a response to customer insight that shoppers wanted more reliable, longer-term low pricing on essentials during tighter months such as January and February.
On supplier-funded promotions, management said participation was only returning toward pre-COVID levels. Executives provided specific figures, saying promotional penetration was around 33% last year and 34% during the 19-week period this year, describing the increase as a “slight creep up.” Management added that it has reinvested a lot of promotional funding into the expanded everyday low pricing campaign, while continuing to emphasize Clubcard pricing as part of the overall value proposition.
Outlook: operating profit at upper end of guidance, cash flow unchanged
Following the Christmas performance, Murphy said Tesco now expects group-adjusted operating profit to be at the upper end of its £2.9 billion to £3.1 billion guidance range issued in October. The company maintained its expectation for free cash flow within its medium-term guidance range of £1.4 billion to £1.8 billion.
In Q&A, management described full-year guidance as “broadly flat” year on year and said that was notable given competitive activity through the year. Executives also highlighted continued investment across store renewal, automation tied to its “Save to Invest” program, and technology innovation, while describing return on capital employed as improving over time.
On cash flow and working capital, CFO Imran Nawaz said Tesco delivered “a very, very strong first half” of over £1.6 billion free cash flow and reiterated that cash generation is typically skewed to the first half, with second-half payments reflecting Christmas inventory flows. He also said Tesco exited the period “very, very cleanly” on stock, which management suggested supports momentum into January.
Asked about competitive conditions, Murphy said market intensity “has remained strong since February last year” and did not materially change over Christmas, adding that Tesco’s response has been “decisive and really quick.”
About Tesco (LON:TSCO)
Tesco was built to be a champion for customers, serving them every day with affordable, healthy and sustainable food. Our commitment to our customers extends beyond our stores, and into every community we serve – in the UK, Republic of Ireland, Slovakia, the Czech Republic and Hungary. We invest in communities to help them thrive, through supporting schools and children’s groups, food banks and other good causes.
In challenging times, our purpose has guided every part of the Group. Serving our customers, communities and planet a little better every day is what we do.
