Following Tesco’s Christmas trading for 2023 which saw a 6.8% LFL sales rise, the leading UK grocer has started 2024 with a ‘cautious outlook’, according to GlobalData analysis.

Senior retail analyst Eleanor Simpson-Gould highlights the record high inflation levels prompting this cautiousness, which is in “Stark contrast to its latest trading update today for the penultimate financial year quarter, as Tesco upgraded its operating profit forecast to £2.75bn.”

For the 19 weeks comprising Q3 and Christmas trading, Tesco reported UK sales growth of 7.5%, a 2.4ppt uplift on the same period last year (5.1%), placing it on strong footing as it enters its final quarter.

Simpson-Gould compares the update with Sainsbury’s total retail growth figures, finding “A softer growth owing to the “Entrenched losses in general merchandise and clothing sales for the similar trading period.”

She also highlights the resurgence in online sales, investments, and fulfilment capabilities as positive steps for Tesco.

Tesco’s strategy focus

The grocer’s upscaling of its Clubcard scheme and improving product innovation to fend off discounters has been a “cornerstone” in its consistent sales growth.

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By GlobalData

Tesco’s CEO Ken Murphy has assured investors that competitive intensity and investment on price will not ease off.

But Simpson-Gould points out that competition from Sainsbury’s and Marks and Spencer will “ensure Tesco remains focused, safeguarding low-cost price matching against discounters while improving premium range propositions.”

Challenges ahead for Tesco

The challenges ahead for Tesco in Q4 are faceted, with disposable income expected to improve in 2024 and a resurgence in customers trading up to premium ranges.

Simpson-Gould states that “Tesco must utilise the success of its broadened Finest range, up 16.7% LFL in the period, and third-party propositions to entice customers to dine in this Valentine’s Day and secure a final sales boost in FY2023/24.

“As the final quarter gets underway for Tesco, the grocer is strengthening its proposition to cement its position as the market leader, announcing a double Clubcard points scheme, the first of its kind offered in over a decade, and enhanced plant-based propositions to capture Veganuary shoppers.”