Tesco, the UK’s largest supermarket, said shoppers are buying more this year and treating themselves to its top-range produce as it reported a rise in sales and profits.

The retailer reported 4.9% growth in food sales, with fresh food performing strongly, it said. Tesco Finest sales, its premium own-brand label, also saw volumes rise by nearly 15 per cent.

Tesco said it had lowered prices across its everyday grocery lines as inflation continued to ease and was using AI tools to tailor its stores offerings to local shopping habits.

Sales volumes were boosted by 'significant investments in value, quality and service', Tesco said, with prices cut on over 2850 products by an average of around 9% in the UK.

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The company, which accounts for more than a quarter (27.8%) of the total UK grocery market, forecast it would now make an extra £100m profits as it said it would make £2.9bn in annual adjusted operating profit, up from its previous guidance of 'at least £2.8bn'.

Chief executive Ken Murphy said the retailer was in good shape: “We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result. We are in good shape, with volume growth delivering strong financial performance.”

Its premium 'Finest' range saw growth of almost 15%, so the higher, quality end is attractive too. Tesco’s market share is now at the highest level since January 2022 and the supermarket is in a strong position to continue to grab market share, maintaining its position as Britain’s premier grocer.”

Richard Hunter, interactive investor’s head of markets, said: “Tesco continues to dominate the British grocery aisles through a mixture of relentlessly competitive pricing and innovation.

“At present, the group’s market share remains at 27.8%, which is equivalent to that of its nearest rivals (Sainsbury and Asda) combined.

“Its sheer scale feeds its appetite for lowering prices for customers through the likes of Aldi Price Match, Low Everyday Prices and Clubcard Prices, while a strong focus on significant cost reduction creates something of a virtuous circle.”

Investment manager at RBC Brewin Dolphin, Zoe Gillespie, said the supermarket was 'performing very well in a highly competitive sector'.

“Tesco’s strategy continues to deliver, with rising revenues and strong profits growth underpinned by increased market share – which now stands at nearly 28%. The supermarket group is performing very well in a highly competitive sector – particularly faced with inflationary pressures.

She said Tesco is in a very strong position to protect its market share through its loyalty programmes – Tesco Clubcard – and high levels of customer satisfaction. “The sale of its banking operation and ample free cashflow also provide Tesco with plenty of dry powder to make its next big move.”

Mark Crouch, analyst at investment platform eToro, said: “Food sales growth has been an area where Tesco is rarely beaten, offering a larger and wider variety of products to their customers. Price-matching and Tesco’s Club Card loyalty program, which has grown to over 22 million members and counting, have also been a resounding success.

“As Tesco looks to the future, a stronger focus will be given to growing their online shopping participation. With the implementation of AI, the supermarket giant plans on using invaluable data from Club Card users to help customers cut costs, reduce waste and create an overall more personalised shopping experience.

“While the economic challenges on the horizon may be no less demanding, Tesco has demonstrated time and again they have what it takes to stay one step ahead of their rivals.”