Tesco has posted its worst Christmas performance since the recession of the early 1990s – evidence that as the downturn bites the UK’s top grocer is losing its touch and has been knocked by rivals.

Er, not really. The share price rise that greeted the update showed that, contrary to the impression of catastrophe created in some headlines, Tesco’s status remains enviable.

Much was made of the grocer’s 2.5 per cent like-for-like growth and how paltry it looked alongside the 4.5 per cent notched up by Sainsbury’s. But adjusting for the effect of last month’s VAT cut, Tesco actually managed a 3.5 per cent rise.

Certainly there should always be an expectation that the best retailers should outperform the market during tough trading periods and there is no doubt that competitors have been gaining on Tesco for some months.

But growth has come off the boil a little, not gone into reverse. It could be argued that with such commanding market share positions, it’s surprising not that Tesco’s growth has been slower but that it relentlessly continues.

That is tribute to the focus of Tesco’s top brass and the consistency and innovation delivered to customers.

In a downturn, domestic conditions and considerations inevitably weigh heaviest. But Tesco’s long-standing strategy has enabled it to carry on growing at home and both to seize opportunity and balance risk by expanding internationally.

The retailer notched up total sales growth of 11.6 per cent over the festive period. Internationally the figure was 32.7 per cent and the rise was 24 per cent in Europe alone – despite the economic slowdown.

In the UK, market share gains were made in key non-food categories such as electricals and clothing. Online and Direct sales rose 18 per cent to£273m – that’s more than three times e-tail star Asos’s annual revenues last year.

Tesco cannot afford to rest on its laurels but there is little reason to fear that it is. The jury may be out on the merits of the low-price Discounter range, but the giant can afford to lower prices on the back of colossal volumes. That capability alone is likely to ensure it remains one of the sector’s winners during and after the downturn.

This year, Tesco should break through the£3bn profit barrier – that’s three times the magic£1bn first achieved eight years ago – to this day only ever equalled, and at that briefly, by Marks & Spencer. It’s an astonishing achievement and evidence of Tesco’s enduring strength.

George MacDonald is deputy editor of Retail Week

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