Tesco sales rise shows tentative recovery continues

By James Davey

LONDON (Reuters) - Sales at Britain's biggest retailer Tesco (TSCO.L) edged higher over the last three months, industry data showed on Wednesday, adding to signs of a tentative recovery in the supermarket's fortunes under its new boss.

Market share figures from researchers Kantar Worldpanel also showed discounter Aldi overtaking upmarket chain Waitrose to become Britain's sixth-largest supermarket by sales.

The rise of Aldi and fellow discounter Lidl has been a major thorn in Tesco's side in recent years.

Since joining in September, new Tesco chief executive Dave Lewis has been fighting back by cutting prices, increasing product availability, cutting queues and improving stores.

Kantar Worldpanel said Tesco's sales rose 0.3 percent in the 12 weeks to March 29.

That increase, which followed data last month showing Tesco's strongest sales performance in 18 months, helped the supermarket to almost halt its market share decline. Its share was down only two tenths of a percentage point to 28.4 percent compared with last year.

Shares in Tesco are down 11 percent year-on-year, but are up a third so far this year on recovery hopes. The stock was down 1.3 pence to 250 pence at 1003 GMT, valuing the business at 20.5 billion pounds ($30.6 billion).

Lewis is also cutting costs and selling assets to mend Tesco's finances and fight back from years of declining market share, debt-rating downgrades and an accounting scandal.

The firm reports 2014-15 results on April 22 when it is expected to post a third straight fall in annual profit.

Of Tesco's major rivals, Sainsbury's (SBRY.L) saw a sales increase of 0.2 percent in the three-month period, its first growth since August 2014.

However, Asda and Morrisons (MRW.L) recorded sales declines of 1.1 percent and 0.7 percent respectively.

Asda, the British arm of U.S. group Wal-Mart (WMT.N), in particular appears to have been affected by Tesco's improvement.

Aldi and Lidl's sales rose 16.8 percent and 12.1 percent respectively, taking their market shares to 5.3 percent and 3.7 percent.

Aldi's growth has been fuelled by over half a million new shoppers choosing to visit this year and average basket sizes increasing by 7 percent, Kantar said, though it added that sales growth for the discounters had slowed in recent months.

Aldi has an expansion plan which will see it double in size, reaching 1,000 stores by 2022.

Britain's overall grocery market grew 1.0 percent over the period, Kantar said. Grocery inflation was down 2.0 percent, reflecting the impact of Aldi and Lidl and the market’s competitive response, as well as deflation in some major categories including vegetables, milk, eggs and bread.

(Editing by Keith Weir and Mark Potter)