Big Price Drop drives volume growth at Tesco

However, the UK’s largest retailer said its “underlying health has strengthened” despite the deflationary effect of its Big Price Drop campaign. Tesco said the campaign has “significantly reduced the rate of inflation in the business”.

Tesco reported: “After just 10 weeks the early results - from this fundamental, long-term shift in our pricing and promotional strategy - are promising.”

Total UK sales including VAT and excluding petrol grew 3.7%.

Group sales rose 5.4% excluding petrol in the 13 weeks to November 26.

Tesco said it is gaining market share in the UK as it “continues to grow faster than the industry”.

Online sales in the UK increased by nearly 10% in the third quarter, “reflecting strong growth in Tesco Direct”.

Group chief executive Philip Clarke said: “We have made good progress in our third quarter against the background of challenging conditions for consumers in many of our markets.

 “In the UK, our increased investment in the shopping trip for customers is starting to deliver.  The Big Price Drop campaign, now in its second phase, has lowered prices significantly for hard-pressed families and we are now being rewarded with stronger food volume growth. 

“We are also seeing positive customer reaction to the improvements in our general merchandise ranges.”

Tesco said it is aiming to help hard pressed shoppers by “reducing prices with the aim of driving more volume growth through our stores”. 

The retailer highlighted Kantar data, and said it shows that its volume performance is now “materially stronger and ahead of the market”.

Performance in general merchandise, clothing and electricals improved in the quarter.

In Europe, sales excluding petrol grew 5.8%, with Poland and Slovakia performing particularly well. Like-for-likes in Europe were up 0.9%, from 0.1% in the second quarter.

However, Tesco said its performance in Ireland was weaker, with like-for-like growth “slightly” below last year.

Tesco said like- for-like growth in Asia was “robust” in September and October.

However it said November’s growth was “impacted significantly” by the flooding in Thailand, while it said the warmest autumn temperatures in northern Asia for 75 years affected seasonal merchandise sales, particularly in Korea and China.  

Tesco said like-for-like growth in Asia “slowed sharply” during the quarter - to 0.8% - as a result. Total sales grew 9.7%.

The third biggest grocer in the world said it continues to be “encouraged by the momentum” in its US stores Fresh & Easy, where sales were up over 29% in the quarter. Like-for-likes increased 11.9%

Clarke added: “Overall, we saw good growth internationally despite some of our markets in Asia being affected by difficult trading conditions.”