Tesco has reported UK like-for-like growth of +6.7% in the third quarter, accelerating to +8.1% at Christmas; with chief executive Ken Murphy stating the retailer grew across all formats, channels and categories.
Commenting on the results, Ross Hindle, Analyst at Third Bridge, said: “Tesco’s saw positive growth during the last quarter, boosting their market share, and increasing like for like sales by 5.7% year on year. This was driven by strong volumes and improved price/mix.
“Tesco has enjoyed a strong growth in 2020 thanks to increased consumption, savings across promotional activity and, reputational improvement.
“Pricing has been strong through the pandemic, with the percentage of goods on discount dropping from c.40% to c.20%. Looking forward, the company is set to benefit from inflationary increases, with experts forecasting a 3-5% rise in food inflation during 2021.
“Tesco is well-positioned to benefit from the growth in online food retail. Online penetration levels could mature to around c.14-16% in 2021 and as the market leader in this segment, Tesco is set to capitalise on this shift. The company is expected to open around 25 fulfilment centres over the next three years, doubling its online capacity to 3m delivery slots per week.
“Although inflation is expected to drive prices upwards, there is continued downside risk associated with pricing pressure driven by the discounters, Aldi and Lidl, who continue to take market share in the UK. Tesco may also suffer from margin erosion due to increased Covid related expenses, such as higher labour costs. Also the management has guided to an estimated £810m of Covid-related costs expected through 2021.”
Richard Lim, CEO, Retail Economics, said: “A lockdown Christmas for many encourage households to trade up to premium items and treat themselves after a challenging year. Overall sales rose impressively but the online channel continued to grow at an eye-watering pace.
“The impact of the pandemic has caused a permanent change in shopping behaviour across the industry and food has experienced one of the biggest shocks. There’s been a step-change in the proportion of groceries being sold online and it’s one of the areas where habits seem to have stuck. The retailer has leveraged this opportunity and is well-positioned to capitalise their position in the market moving forward.”