The Tesco (LSE:TSCO) share price is seemingly on a rampage. Shares of Britain’s biggest grocery retailer has been on an upward trajectory for several quarters now. And they’ve almost doubled since October 2023, far outpacing the FTSE 100.
The company’s Clubcard and price matching schemes are proving to be quite effective at keeping budget retailers like Aldi and Lidl away from its customers. So much so that Tesco is actually expanding its market share once again, which now sits comfortably at 27.6%, with close competitors J Sainsbury and Asda coming in with 15.3% and 12.6%, respectively.
With that in mind, it’s not too surprising to see the Tesco share price storm ahead. But can it maintain this momentum going forward?
Retail growth drivers
In the grocery retail space, pricing power is virtually non-existent. As such, profit margins often end up being razor thin, with sales volumes making up the difference. Therefore, the name of the game is to try and get many customers as possible through the door.
Low-price retailers naturally have an advantage here, given their lightweight business structure, which allows for wider margins even at lower prices. This is something that B&M European Value Retail has mastered with industry-leading profitability. And as previously mentioned, Tesco has managed to remain competitive through its price-matching schemes on popular items.
However, it’s the Clubcard offering that seems to be making the real difference. The rewards programme is building habits among its shoppers that encourage them to keep coming back. And that’s become evident given the expansion of like-for-like sales despite discount retailers still being significantly cheaper on many product lines.
As such, food sales across the first quarter ending in May this year came in 5% higher. That may not seem like much compared to other companies. But for an industry stalwart like Tesco, it’s pretty exceptional and exceeded investor expectations.
Rivals aren’t sitting idle
In terms of market share, Aldi and Lidl currently control 10% and 8.1%, respectively. Those figures have been trending upward for more than a decade. And it’s a trend that doesn’t seem to be stopping.
While Tesco remains the top dog, both rivals are looking to find new ways to cultivate their own customer habits, including the launch of their own loyalty rewards programmes.
Tesco certainly has the upper hand in terms of experience. But the positive impact of these new loyalty schemes can’t be ignored. For reference, Lidl’s market share has increased by more than 230 basis points since it launched in 2020.
Nevertheless, Tesco’s track record of adapting to competitive threats is impressive. And provided it can continue to expand its claim on Britain’s retail market, the share price will likely continue to rise from here. That’s likely why most broker forecasts are quite optimistic for the firm’s long-term potential.
But in a constantly shifting retail landscape, it’s impossible to know for certain that other retailers won’t change tactics and successfully steal their market share back.
