Tesco’s Booker takeover pays off as sales rise

Experts say supermarket has shaken off pressure from Sainsbury's/Asda merger

The supermarket is relaunching thousands of own brand products (Reuters)

Tesco announced rising sales for the 10th quarter in a row in the three months to 26 May, in a sign its takeover of wholesaler Booker is paying off.

The supermarket reported 1.8 per cent growth in group sales, with UK and Ireland sales up 3.5 per cent.

The group is continuing to work towards a target of relaunching 10,000 own-brand products, as part of its focus on improving its customer offer, and has put 2,850 back on shelves so far.

Tesco recently revealed its decision to close Tesco Direct, its non-food business, which stops trading on 8 July.

“Customers shopping on Tesco.com can already buy some products from our toys, homeware and cookware ranges and we will selectively build on this offer, creating a simpler online experience for customers,” the group said on Friday.

Booker, which Tesco bought for £3.7bn last year, grew sales by 14.3 per cent during the quarter. Tesco said a successful trial of the top 30 selling Booker product lines at two stores will now be rolled out to another 50 branches.

Dave Lewis, Tesco chief executive, said: “Our growth plans are on track and we are pleased with the momentum in the business. We remain well placed to serve our customers better and deliver on our medium-term financial ambitions.

“We are delighted with initial progress on Booker, and are focused on delivering the synergy benefits that our merger brings.”

Competition in the supermarket sector has been tough for some time, and the threat of Amazon encroaching on the already pressurised space recently prompted Sainsbury’s and Asda to explore a merger, which would create a business bigger than Tesco.

However, the first quarter results show Tesco has no need to panic at the moment, analysts said.

Emma-Lou Montgomery, associate director at Fidelity Personal Investing, said: “Forget the ‘threat’ of the Sainsbury’s/Asda merger, the strong performance from the recently acquired Booker wholesale business suggests Tesco has its eye on far bigger fish. Namely, taking on retail behemoth Amazon.

“‘Pile ‘em high, sell ‘em cheap’ was the motto Tesco was founded on and that healthy 14.3 per cent rise in like-for-like sales from Booker, shows the UK’s largest supermarket chain has no desire to relinquish its title any time soon.”

Richard Hunter, head of markets at Interactive Investor, said: “The wisdom of the Booker acquisition, whose own growth was particularly strong in the quarter, is already becoming apparent, whilst the decision to focus more sharply on its more profitable lines with the removal of Tesco Direct is sound.

“It is easy to forget the dominance Tesco enjoys in market share, such that the improved sales performance is even more impressive. Even the recent switch, whereby wage growth is now outpacing inflation, could boost Tesco’s prospects in terms of stronger consumer confidence.”

Shares in Tesco rose 2 per cent in early trading.