Tesco (LSE:TSCO) shares have been on a tear in 2025, climbing by over 20% since January, outpacing the FTSE 100. And those who have been reinvesting dividends paid along the way have enjoyed even further gains, transforming a £15,000 initial investment into roughly £18,585.
That’s quite a change of pace compared to the stock’s long-term track record. And it’s yet a further continuation of market momentum that kicked off back in late 2022. Fun fact: Tesco shares have more than doubled in the last three years.
So what’s behind this stellar performance? And can it continue into 2026?
Impressive market share gains
With most British households feeling the pinch of inflation, bargain-seeking activity among consumers has drastically ramped up over the last few years.
For most discount supermarkets like Aldi and Lidl, this has been an awesome catalyst for getting more shoppers through the door. For larger supermarkets, it’s ramped up the pressure. And yet Tesco stands out as a bit of an outlier.
| Supermarket | Market Share (October 2022) | Market Share (November 2025) | Change |
| Tesco | 26.6% | 28.2% | +1.6% |
| Sainsbury’s | 14.7% | 15.7% | +1% |
| Asda | 14.5% | 11.6% | -2.9% |
| Aldi | 10.1% | 10.6% | +0.5% |
| Morrisons | 9.1% | 8.3% | -0.8% |
| Lidl | 6.8% | 8.2% | +1.4% |
| Co-op | 6.3% | 5.4% | -0.9% |
| Waitrose | 4.5% | 4.4% | -0.1% |
Even with the lion’s share of the market already under its belt, the supermarket giant has continued to expand its empire from 26.6% in October 2022 to 28.2% in November. And that’s translated into a notable uptick in sales, earnings and cash flow.
Following the latest upgrade to guidance, management expects the group’s 2026 fiscal year (ending in February) to deliver up to £3.1bn in underlying operating profits. That’s a 24.6% increase in three years. And for a mature industry titan operating in the retail space, that’s quite an impressive upgrade.
With that in mind, it’s not so surprising to see Tesco shares outperform. But will they continue to do so next year?
What the experts are saying
Tesco’s operational performance has been driven by a variety of factors. Yet the most impactful has undoubtedly been its Clubcard loyalty scheme.
Exclusive discounts and price matching efforts have seemly worked in getting more shoppers through the door, even with bargain-oriented shopping behaviour taking over. And most institutional analysts believe this will continue into 2026, with 12 out of 15 rating the stock as a Buy or Outperform.
That certainly bodes well for shareholders. However, even the most bullish of expert investors have flagged some important risks to consider.
So far, the company has managed to fend off the threat of discounter competition. But if economic conditions worsen, that could require more effort, most likely through further price matching for even price cuts.
That would obviously be good news for consumers. But for Tesco, it just adds even more pressure to its already razor-thin profit margins. And with transport, wage and energy costs already having an impact, the group’s underlying operating profits could underwhelm in the medium term.
The bottom line
Given the potential macroeconomic headwinds, Tesco shares seem unlikely to continue growing like gangbusters, in my opinion. But that doesn’t mean this stock can’t play a central role inside a defensive portfolio.
With that in mind, investors seeking shelter from wider stock market volatility could do well to investigate this business further. But for those seeking to maximise their returns, I think there are far better opportunities to think about today.
