Tesco sales improving as Kantar finds evidence of supermarket growth

UK supermarket industry sales growth remained unchanged in recent weeks, according to data from Kantar Worldpanel, with Tesco enjoying its best performance for two and a half years.

Sales across the grocery sector grew 0.3% in the three months to 11 September, Kantar found, the same rate as announced a month ago, despite continued deflation of 1.1%.

Rival data from Nielsen for the same period found the value of sales up 0.4% as sales volumes increased 0.3%, as a rise in numbers of visits to smaller stores resulted in the first time both metrics have been positive for two consecutive months in over two years.

Kantar found Tesco sales declined 0.2% year-on-year, which was the FTSE 100 giant's best performance since March 2014 and followed a 0.4% fall a month before.

Such a small decline hinted that Tesco could be weeks away from rising sales, Kantar reckoned, and was in contrast to experiences elsewhere in the sector.

While Tesco's market share dropped off 0.1 percentage points to 28.1% of the overall grocery market, Sainsbury's saw its share decline even more sharply to 15.9% from 16.1% a month ago.

Sainsbury’s lost share as its sales fell by 1.4%, with Kantar head of retail and consumer insight Fraser McKevitt noting that overall its prices have fallen alongside promotional activity levels as the group continues to roll out its simpler pricing strategy.

Morrison's market share dropped 0.3 percentage points to 10.4% over the month due to its reduced store estate, although as its recent first-half update showed, like-for-like sales are on the up.

Asda's market share remained at 15.7% but its sales slumped 5.4%, while the strong performance at Co-op continued, with sales growth of 3.1% taking its market share to 6.6%. Iceland’s recent run of success also was extended as sales grew by 6.3% compared with a year ago.

The discounters are still making major inroads into the UK grocery sector, with German groups Aldi and Lidl enjoying sales growth of 11.6% and 9.5% respectively, but not getting as much market from Tesco as they had previously.

McKevitt also noted not only the continued sales growth at Aldi and Lidl, but also visits and basket sizes.

"The discounters are helping drive the industry-wide growth in premium own-label lines, with marketing campaigns moving away from showcasing only price to a focus on quality – collectively, premium own label grew by 29.5% in the discounters this period.

"Shoppers now spend an average of £19.24 when visiting the discount retailers and at a time of falling prices this increase of 4% is not to be sniffed at."

Kantar also noted that alcohol sales were up 8.5% in the past four weeks, with sparkling wines including Prosecco and Champagne growing 36.0% helped by promotional events, notably at Tesco.

“A meagre 0.3% sales rise isn’t overly exciting on the surface but the key here is that Tesco was the best performing supermarket of the “big 4”, and its market share only shrunk by 0.1%, as it continues to battle supermarket discounters Aldi and Lidl.

Nielsen’s head of retailer and business insight, Mike Watkins, said that with the value and volume growth in most weeks since the middle of July "we’re seeing the green shoots of recovery for the leading supermarkets in their battle against the discounters and price deflation".

He added that competition was expected to “remain intense, particularly with Tesco and, soon, Morrison’s back in growth. There’s a lot of market share to play for in the £40 billion sales opportunity up to the end of the year. This is why the supermarkets need to maintain price cuts as part of a strategy to win back market share from the discounters who are expected to respond by increasing advertising spend again in the run up to Christmas.”

Tesco's share price had risen 1% on Tuesday to 178p and was up an impressive 10% over the last five days to extend gains beyond the two-month high.

Vinay Sharma, senior trader at Ayondo Markets said this was evidence "investors are starting put their faith back in the supermarket giant," ahead of its 5 October earnings report.

Sainsbury's was down almost 1% to 244.35p, while having hit a two-and-a-half-year high on Monday, Morrisons was 0.5% lower at 213.9p not long before noon on on Tuesday.