Tesco said its discount food range has helped to support weak but positive sales over its third quarter to 22 November, with like-for-like sales in the UK up by 2%, excluding petrol. Shares in Tesco responded positively in early morning trading with its price up more than 6% as of 8:30am.

With food inflation, excluding petrol, waning over the quarter, prices have been on the decline market wide but Tesco said it has dropped its prices faster in an effort to retain customers in what has been a challenging market. The company’s 'Discounter' products and related range, which are priced lower than branded products, now represents more than 5% of Tesco’s food and grocery sales, it reported.

Tesco chief executive, Terry Leahy said: “The launch represents the biggest single change to our ranges since Value lines were introduced in 1993. By giving customers more affordable choices, we have deflated our sales during the quarter by between two and three percentage points.” Still, Leahy pointed out that Tesco is attracting over 300,000 more customers each week, which he said was starting to translate into improving sales volumes.

Leahy said the business was being adjusted to meet the new challenges with a focus on becoming even cheaper for customers and keeping costs low to help achieve this. Tesco is aiming to be cash positive during the second half of the current financial year and in recognition of the changed financial and economic climate, it intends to reduce capital expenditure next year to below £4bn.

Over the past quarter non-food sales, while showing a small decline on a like-for-like basis, remained positive overall while Tesco Direct and tesco.com both performed well over the quarter, according to the group. It also reported international sales were up 14.6% at constant exchange rates.

The company made what its board called ‘the prudent decision’ to maintain, rather than accelerate its current rate of new store expansion in the US given the severity of the economic slowdown in some geographic markets there.

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