Tesco has recorded its “biggest ever Christmas”, with the UK’s largest supermarket chain landing its biggest share of the festive shopping trolley since 2016.
The grocer revealed that sales at established UK stores rose 4% in the six weeks to 4 January, with fresh food performing particularly strongly and clothing and homeware sales also up.
Tesco now controls 28.5% of the grocery market and gained share from premium and discounter rivals over the 12 weeks to 29 December, according to the analysts Kantar.
Ken Murphy, the chief executive of Tesco, confirmed increases to national insurance payments for employers announced in the budget would add £250m a year to the retailer’s wage bill.
He said there was “no doubt” the new rules would “impact the cost of doing business in the UK for all industries and particularly for retail”.
However, he added: “This year doesn’t feel any different than the last four years as we have had one major challenge every year” – such as the Covid pandemic, Brexit and supply chain disruption.
Murphy said Tesco was aiming to make £500m in cost savings this year and would “work really hard to mitigate the impact of any inflation from a customer perspective” with more efficient distribution systems and cutting waste, which he said would not necessarily involve job cuts.
He said it was difficult to tell if the rise in employment costs would drive up inflation as other factors – including commodity costs, import tariffs and government decisions, including on business rates – could affect prices.
The government is consulting on changes to business rates, and Murphy warned that potential plans to raise the bill for larger stores would hit supermarkets and high street anchors such as department stores, which were “critical to maintain the integrity of the high street”.
Murphy said the strong performance reflected investments made in prices and the quality of products, as well as hiring an extra 28,000 staff over the Christmas period to help in shops and online depots.
He said the cost of a traditional Christmas dinner had been cut by 12%, while sales of Tesco’s premium Finest range jumped 15.5% as the group added 300 festive products. Sales of meat joints rose 10% and mince pie sales were up 8.5%.
Murphy said: “We invested to bring the best value, quality and service to everyone, no matter how or where they shopped with us. As a result, we delivered our biggest ever Christmas, with continued market share growth and switching gains.”
He said consumers were “balanced” in sentiment, showing they were prepared to treat themselves, with a rise in sales of Tesco’s premium own-label goods, but also look for bargains, and he did not see any real change in behaviour as a result of the budget.
Despite the upbeat trading update, Tesco shares fell 1.4% on Thursday. Murphy said: “I think a lot of people had already kind of priced in the performance given the Kantar results that were published a few days ago.”
Underlying sales for the group rose 3.8%, helped by a strong performance in Ireland and central Europe. However, the group recorded only 1.4% sales growth in its Booker wholesale arm, which was held back by the fall in tobacco sales and fast food.
Like Next and Marks & Spencer, Tesco experienced strong growth online, with sales up almost 11%.
Murphy said Tesco continued to meet expectations of an annual underlying profit of £2.9bn.
Separately on Thursday, M&S reported sales in established food stores were up 8.9% in the 13 weeks to 28 December. Sales of clothing, home and beauty products grew by 1.9%.
