Tesco is tightening its grip on the UK supermarket crown
Tesco has boosted market share again as it outperforms peers in the ever-more competitive UK grocery space.
In its first-quarter results this morning, the supermarket giant reported a 5.9 per cent uplift in food sales and a 6.2 per cent rise in home and clothing sales.
Tesco now has 28 per cent of the UK grocery market after 24 consecutive weeks of gains.
It has been a particular beneficiary of Asda’s market share, although it has steadily fought off tough competition from Sainsbury’s, Morrison’s and discounters Lidl and Aldi.
“[Tesco’s] consistent market share gains and performance across channels point to a business that is not just defending its position, but continuing to grow,” Neil Shah, Executive Director of Edison Group, said.
The UK grocery market is intensely competitive and has to manage razor-thin margins, but Tesco “appears to be in a better position than many of its peers,” John Moore, wealth manager at RBC Brewin Dolphin, said.
“[It] has set out a clear strategy for navigating those challenges, is still managing to grow its top line,” Moore added.
What is Tesco doing right?
Tesco’s market share reached 31 per cent in 2005, a peak followed by a decade and a half of incremental decline (a horse meat scandal in 2013 did not help matters).
But for the last few years – helmed by CEO Ken Murphy – the grocer has been back on an unstoppable rise.
Tesco’s success has been a “mix of a massive product range, unbeatable convenience, and customer favourites like Tesco Finest”, Mark Crouch, market analyst at Etoro, said.
“Constant innovation, from BBQ ranges to award-winning wines, and its scale keeps prices razor-sharp, fending off even the fast-growing budget chains,” he added.
The grocer also benefits from leaning into its long-term advantages – it was an early adopter of two of the most important trends in retail: loyalty schemes and convenience stores.
Tesco Express accounts for around 30 per cent of grocer’s convenience stores in the UK, meeting customers – particularly young, time-stretched ones – where they are.
It also launched the UK’s first supermarket reward scheme in 1995, Tesco Clubcard, and introduced Clubcard Prices in September 2020.
“Competitors have tried to replicate it, but none come close in reach or impact,” Crouch said.
Tesco Clubcard boasts the highest awareness of any grocer loyalty scheme in the UK, and the most members.
“The Clubcard loyalty scheme provides an important insight into shopping trends so Tesco can make targeted promotions and ensure it stocks the food people want.
“Clubcard also acts as a mechanism to give shoppers some money off, another tool in its armoury to win the grocery wars,” AJ Bell analysts Russ Mould said.
Are the ‘trolley wars’ a threat to its crown?
Asda made waves earlier this year when it announced a ‘war chest’ of money ready to invest in lower prices to claw back market share from Sainsbury’s and Tesco.
Julie Palmer, partner at Begbies Traynor, said that Tesco “can’t afford to rest on its laurels”.
“Rising costs mean staying efficient is absolutely vital and the threat of a price war adds further pressure.
“Discounters like Aldi and Lidl continue to gain market share and Asda’s aggressive price cuts is also turning up the heat on the UK’s largest grocer asking whether and where it can take a scythe to prices when harvesting profits,” Palmer said.
Earlier this year, Tesco said it expected lower profit in 2025 due to the “competitive intensity” of the UK market.
“We are committed to ensuring that customers get the best value in the market by shopping at Tesco and we see further opportunities to protect and strengthen our competitiveness,” the company said.
But some analysts have suggested that the threat from Asda may be overblown.
“Investors remain focused on the Asda price threat for now, but it is becoming increasingly evident that it is not amounting to much.
“This gives some reassurance that Asda’s investments will not be as disruptive as originally anticipated,” Lucy Rumbold, equity research analyst at Quilter Cheviot, said.
Palmer added: “Tesco’s strategy appears well-suited to the current market… it looks well-placed to keep winning in this highly competitive environment.”