Tesco's UK sales growth accelerates in 'intensely competitive' market

By James Davey

LONDON (Reuters) -Tesco, Britain's biggest food retailer, reported a better-than-expected pick-up in underlying sales growth in its first quarter and won market share from rivals, saying improvements in value, product quality and service were chiming with consumers.

The group, whose share of Britain's grocery market has grown this year to 28%, a level not seen since 2016, did, however, leave its profit guidance for the full year unchanged on Thursday, with CEO Ken Murphy saying the market "remains intensely competitive".

Shares in Tesco were up 2% after it said UK like-for-like sales rose 5.1% in the 13 weeks to May 24, having been up 4.3% in the previous quarter.

Group sales were 16.4 billion pounds ($22.2 billion), up 4.6% on a like-for-like basis.

Murphy said the UK outcome reflected "our powerful value proposition, strong availability and focus on product quality and innovation".

Tesco's update bucked wider industry data published on Tuesday showing British consumer spending on non-food items lost momentum in May as households' confidence in their personal finances fell.

STAYING TOE-TO-TOE

Tesco said it still expected to report adjusted operating profit of between 2.7 billion and 3.0 billion pounds for the year ending February 2026, down from the 3.13 billion pounds achieved in 2024/25.

The group had said in April it expected profit to fall in its 2025/26 year as it set aside cash to deal with a step-up in the "competitive intensity" of the British grocery market - a reference to a pledge of sustained price cuts from Asda, the number three player, which has been losing market share.

"We're definitely seeing an intensification in competition, I think that broadly though it's been a rational intensification, in the sense that everybody is kind of staying toe-to-toe with each other," Murphy told reporters.

"So you're not necessarily seeing massive movements in relative competitiveness but everyone has, I think, upped their game a notch."

He said inflation at Tesco was running at below the industry rate - which jumped to 4.1% in May, according to market researcher Kantar.

Most analysts think Tesco's strategy of matching the prices of discounter Aldi on hundreds of key items, together with heavy promotion of its Clubcard loyalty scheme, which provides lower prices for members, is working well.

Tesco is also becoming increasingly digital, stepping up personalised engagement with customers and developing growth avenues such as its online Marketplace platform and retail media.

"(Tesco) appears to be in a better position than many of its peers," John Moore, wealth manager at RBC Brewin Dolphin, said.

($1 = 0.7377 pounds)

(Reporting by James Davey, Editing by Paul Sandle, Jan Harvey and Emelia Sithole-Matarise)