After Tesco posted a better than expected Christmas trading update today, people are asking themselves if the grocer has turned a corner.

There was great excitement about Tesco’s UK +1.3% like-for-likes for Christmas 2015, leading to the question ‘is Tesco and the UK food retail sector finally turning a corner?’. If you were Dave Lewis you might feel slightly miffed that this question is asked at all – Tesco turned a corner 12 months ago and has had four full quarters of 2% to 3.5% volume growth.

Tesco hasn’t lost market share in terms of customers, traffic or volume – surely the one-and-only lead measure of a turnaround for a full year. It has achieved that at the same time as starting to rebuild the margin and generating surplus cash. There are no ifs and buts about that.

If there is an element of ‘turning a corner’ this week, it is the fact that Tesco confounded all observers by compounding success this Christmas upon success last Christmas. We all knew that the good news for Tesco started in the run-up to Christmas 2014, we use the jargon of ‘tough comps’. As Tesco annualised against those good results from last year we were expecting worse results this time round.

None of that. It blew all estimates out the water by delivering the best Christmas trading results of all the companies that reported so far (Waitrose, Sainsbury’s, Morrisons, Tesco). In food retail there is always a suspicion that a new chief executive can buy some good results in the short term. But can he keep delivering? Yes he can. He just did.

There is more good news. From now on Tesco doesn’t have to compare against previous year’s sales numbers inflated by the indiscriminate money-off vouchers (£5 of £40). Tesco indicated that without those tactics in the previous year, third quarter like-for-likes would have been -0.5% rather than the reported -1.5%. That is a good rate to start the fourth quarter of this year and to start pencilling in positive like-for-likes for next financial year.

“The interesting element in this turnaround performance is that Tesco isn’t trying to mimic the discounters that have put so much pressure on them”

Bruno Monteyne, Bernstein

The interesting element in this turnaround performance is that Tesco isn’t trying to mimic the discounters that have put so much pressure on them. On the contrary: when visiting the stores over Christmas they were well-stocked, with an equal focus on price – ‘festive five’ vegetables and brand guarantee – as on treating yourself to something special for Christmas.

The breadth of range appeared as wide as ever, despite those range reviews we all talk about so much, and plenty of seasonal non-food items to choose from.

To continue this trading momentum, we think Tesco will continue to become Tesco again – the best and the most locations, prices that are competitive especially on the essentials (but not necessarily the cheapest on everything), a range that is broader than any others and a quality that is good enough (most likely to be more focus will here).

Tesco aims to provide: convenience in the broadest sense of the word; stores close to the customer; prices and ranges that match different budgets, so you don’t have to do three shops a week to get a good price; and good quality, delivered to you through whatever channel you prefer. While most successful retailers are often one-trick ponies, Tesco is well under way to be a five-trick pony once again.

  • Bruno Monteyne is a senior European food retail analyst at Bernstein