Changes to Tesco’s marketing strategy that saw it accentuate humour and pop culture references over the Christmas period helped it beat analysts’ forecasts with a sales rise over the key period.
The country’s largest supermarket posted a stronger than expected performance for the six weeks over Christmas, with group sales up 2.1 per cent against the same period last year. Commenting on the performance, chief executive Dave Lewis said the “strong” results were aided by lower prices on an “outstanding range of products”, alongside improvements to customer service.
Both aspects are key parts of Tesco’s renewed bid to win back shoppers in the face of tougher competition from its rivals and its advertising over the festive period were the first sign of things to come. It marked the first major campaign from BBH since it won the account last January, while the supermarket has also made several changes internally to switch up its marketing.
On an earnings call for Tesco’s quarterly results, Lewis shed further light on what he thinks are the three main factors driving its strategy – “competitive price, a compelling customer offer and outstanding commitment of Tesco colleagues”. Christmas was “simply more affordable this year because we invested in price”, he continued, with lines 5 per cent cheaper opposed to its competitors.
“These results show another step in the right direction. We are more competitive than last year… what we have been doing is focusing on the Tesco offer being better for Tesco customers and that’s led more people to shop at Tesco… there’s much more to do but a positive step in the right direction,” added Lewis.
Despite the strong festive showing, group sales for the quarter were down 0.5 per cent as the business continued to struggle against the discounters and renewed efforts of Sainsbury’s, Asda and Morrisons to win back market share.
To combat that competition and deliver a more profitable business model, Lewis has been axing brands, with Ribena and Carlsberg to receive the chop in 2015 in order to free up funds to slash prices and improve availability in-stores. It’s an approach that will take Tesco closer to the back-to-basics yet effective business strategy that has served Aldi and Lidle so well in their rise to popularity in recent years.
“We are continuing to focus our efforts on serving our customers a little better every day and I want to thank my colleagues across the Group for their commitment, passion and energy,” added Kewis.
“There is plenty more to do, but we are making good progress and are trading in line with profit expectations for the full year.”
Tesco’s results are the latest to defy expectations in what has been a hard to predict festive period as far as supermarket sales are concerned. Morrison’s defied analysts’ forecasts with a sales spurt over the key trading period, while Sainsbury’s suffered a dip despite gaining market share according to Kantar.
“Tesco were not going to be left out in the week of Christmas trading surprises, delivering extraordinary for Like for Like sales for the Christmas period,” said Phil Dorrell, partner at Retail Remedy.
“Investment in price and customer service has cost Tesco margin, but has attracted customers for the longer term if the recent improvement in retail standards and customer service can be maintained for future growth. The Tesco marketing campaign didn't play to our emotions but it played to the hassles and pressures of christmas in a humourous way, connecting with the customer."
John Ibbotson, director of the retail consultancy Retail Vision, continued on this point: "The challenge is to keep up the momentum and stay in the game. In this regard, Tesco will be thankful of its size, which means it can keep its prices down for longer than anyone else."
Separately, Lewis downplayed the threat of Amazon’s fledgling grocery offer to Tesco’s momentum but did reveal that it would be forced to reassess its strategy should Sainsbury’s succeed in acquiring Argos owner Home Retail Group.