Tesco Sales Growth Slows Amid Consumer Uncertainty and Discount Competition

Tesco reported a slowdown in sales growth for the first quarter of its financial year, as households curtailed spending amidst what the company's CEO described as 'ongoing uncertainty.' The UK's largest supermarket chain saw like-for-like sales increase by 1.8 percent in the 13 weeks ending May 30, a figure that fell below the 2.3 percent forecast and represented a decrease from the 3.1 percent growth recorded in the previous quarter.

Chief Executive Ken Murphy attributed the trend to the 'ongoing uncertainty' for many households, which he linked to the Iran war. Despite this challenging environment, Murphy noted continued sales growth in the first quarter and highlighted that Tesco had increased its market share. The company is actively competing with discounters, having extended its 'Aldi Price Match' initiative to over 2,000 Express stores in April. Murphy also stated in April that the conflict had created 'further uncertainty' for the group's annual outlook, but pledged to do everything possible to keep food prices down.

Tesco maintained its financial forecast for the year ending February 2027, expecting adjusted operating profit to be between £3 billion and £3.3 billion. The company noted that the current quarter's performance was compared against an 'exceptionally strong' first quarter of the previous year, when sales grew by 5.1 percent, partly due to favorable weather conditions.

According to Worldpanel, Tesco has solidified its market share to over 28 percent, intensifying its competition with German discounters Aldi and Lidl. "We remain focused on giving customers the very best combination of price, quality and service," Murphy said. Richard Hunter, head of markets at Interactive Investor, commented that any progress for Tesco occurs alongside "ferocious competition and pressure on increased costs, while maintaining lower prices also comes with an inevitable impact on margins and revenues."

In an effort to cater to consumer demand for premium products, Tesco has also focused on its 'Finest' range, which experienced a 9 percent sales jump in the first quarter following the introduction of over 220 new items. Garry White, Chief Investment Commentator at Charles Stanley, described Tesco's first-quarter update as indicative of "solid, if unspectacular, trading, with the group continuing to demonstrate resilience in a highly competitive market." He added that the company's ability to maintain market share is significant given the ongoing pressure from discounters and increasingly price-sensitive consumers, keeping the focus on value and promotions.

Tesco shares opened 3.42 percent lower at 441 pence following the announcement.