Fewer Bottles, Fitness & Finest... What Tesco tells us about the British shopper

Tesco beat on profit. But is the British shopper buying more, or just buying differently?

What happened

On Sunday I asked whether Tesco's half-year results would confirm the juggernaut story or show the squeeze.

The answer is a bit of both. Group revenue, including fuel, rose ahead of forecasts, although higher fuel prices did some of the lifting. Strip out fuel and VAT and core sales were up 1.6% at constant exchange rates. Adjusted operating profit rose 6.5% and Tesco raised the bottom of its full-year profit range, now £3.15bn to £3.3bn.

Shareholders were rewarded too: the buyback goes up from £750m to £950m, the interim dividend rises 5.2% to 5.05p, and capital spending guidance has been nudged up to around £1.7bn. The shares closed more than 5% higher on Thursday, the best performance in the FTSE 100 on a day the index fell, having been up almost 8% at one point.

As Richard Hunter, of Interactive Investor, put it, Tesco "has again flexed its financial muscle".

The number underneath

UK like-for-like sales growth slowed from 1.8% in Q1 to 1.3% in Q2, or 1.5% for H1, although food held up better at 2.4%. Tesco's grocery market share slipped to 27.8%, which it puts down to lapping disruption at rivals a year ago.

So the profit beat had less to do with selling more than with selling better: a richer mix and £251m of cost savings in the half, with £500m targeted for the year. Squeezing more profit out of slow growth is exactly what a mature market leader should do.

What it tells us about the British shopper

The shopper is pulling in two directions at once: real thrift on the basics, and what you might call intentional indulgence. Finest sales grew 8.9%, on volume, not just price. At the same time, Tesco now runs around 700 Aldi Price Match lines, Everyday Low Prices on more than 3,000 branded products and more than 10,000 Clubcard Prices. Across the market, Worldpanel shows spending on promotions up 7% against just 1.4% at full price, and grocery sales rising slightly less than grocery price inflation. People aren't buying more. They're choosing more carefully.

Part of the explanation is "treating in". When a meal out starts to feel like a luxury, a £15 Finest dine-in or a Friday-night "fakeaway" at home feels like a bargain. Worldpanel noted last year that visits to casual restaurants had fallen while shoppers were "still seeking treats in store", and that pattern hasn't gone away.

Value-hunting has become less about necessity and more about feeling in control. Price Match takes away the nagging sense that it would have been cheaper down the road.

Shoppers seem to also be flipping between two modes:

The retailer that wins both modes wins the shopper.

The wider data says the same thing. Consumer confidence is at its highest since August 2024, but still negative, and GfK's savings index jumped. Next has already trimmed its UK sales forecast for the second half, citing inflation, mortgage costs, a weaker jobs market and the Budget.

The British shopper isn't broke. They're cautiously pragmatic: cutting the big, structural spends like eating out, to make room for small, controlled luxuries at home.

What's actually in the basket

The more interesting change is what people are buying. Tesco's new lines read like a wellness menu: fibre-enriched bread, high-protein ready meals, gut-friendly dairy and wellness shots.

Worldpanel estimates the share of UK households with someone on a weight-loss drug has jumped from 2.3% in 2024 to 6.3% this year, and those households spend around £418 a year less on groceries. That's roughly £780m wiped off grocery spending in a year, and uptake is still climbing.

Retailers are betting that what's left of those budgets shifts towards protein and gut health, which is exactly what Tesco's new lines are designed to catch.

On the great British pastime of boozing… habits are changing. A Portman Group survey in January found a third of UK adults don't drink at all, and more than a third of drinkers now buy low or no-alcohol options, rising to 43% of 18 to 24-year-olds.

This shift to no or low alcohol has moved well beyond Dry January. People want the ritual of a drink without the hangover, the calories or the bill.

Could Christmas be less boozy?

It already was. Worldpanel's figures for last Christmas show take-home alcohol spending fell 4.1% to £1.9bn, the sharpest drop since 2021, while low and no-alcohol sales rose 14%. But total grocery spending hit a record £13.8bn.

People didn't celebrate less. They drank less but drank better.

Based on the trend, I'd expect Christmas to be a little less boozy again this year, but not less festive: fewer bottles, better bottles. It's the same pattern Porsche described on Wednesday. That makes the reported interest in Majestic Wine more intriguing. If you believe people will drink less but trade up, owning a premium specialist makes strategic sense.

The Comms Read

With sales growth slowing, Tesco led with what most investors would have on their Xmas wish list: a higher profit floor, a bigger buyback and a rising dividend. The softer numbers were there, with an explanation attached.

Where it could go further is the story it is uniquely placed to tell. On Sunday I said Tesco should use its Clubcard data to explain where customers are trading up and down. It gave us Finest and price-match numbers, but no member figures and no switching data.

Also, on the health shift, Tesco has a genuinely interesting story about how Britain's basket is changing. Weight-loss drugs, moderation and protein-everything are some of the biggest consumer shifts in a generation. The retailer that best explains these trends, with its own data, could own the narrative for the decade ahead.

For food and drink brands, the lesson is simple: moderation is now mainstream. Low and no isn't a January novelty. Brands that sell it as a lifestyle choice will find a bigger audience than the ones still selling it as a sacrifice.

What to watch

The next Worldpanel grocery data and the BRC's September retail sales figures, both due next week; inflation figures on 21 October; the Budget on 28 October; and Tesco's Christmas trading update on 14 January, which will tell us whether the less boozy Christmas is a trend or a blip.

Disclosure: I am a long-term holder of Tesco shares.

Time will tell. GLA & DYOR.

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