What’s going on with Tesco shares?

Shares in Tesco (LSE:TSCO) fell 7% on Thursday (8 January) after the company reported weak Christmas sales. The big issue for investors is why this has been happening.

GLP-1s

Tesco reported like-for-like sales growth of 2.4% over the Christmas period. Thatâs below the level of inflation and represents a disappointing result.

One potential reason for this is the increased use of GLP1s â anti-obesity drugs that actually work. And this might be changing the way consumers shop and eat.

This could be a long-term issue for the company and its shareholders. But Iâm sceptical of the idea that this is the main reason for the weak update in the last quarter.

For one thing, J Sainsbury reported stronger growth in its food sales over the Christmas period, especially in its premium ranges. Furthermore, I can see another reason for Tescoâs weakness.

Unemployment

UK unemployment has risen from 4.4% at the start of 2025 to 5.1% at the end of October. And in addition to competition from Sainsburyâs, this wonât have helped Tescoâs sales.

This view is borne out further by looking at the report Sainsburyâs issued on Friday (9 January). The firmâs weakest performance was in Argos, especially in big-ticket items.

At the risk of stating the obvious, you don’t eat those things! And that suggests to me that a lot of whatâs going on is to do with consumer confidence, not falling consumption.

UK unemployment isnât something Tesco can do something about. But itâs likely to be more temporary than the rise of GLP-1 medication and thatâs a positive sign.

What should investors do?

If Iâm right, Tesco shares are down 7% because of some short-term challenges. And Iâm including the loss of market share to Sainsburyâs in that category.

One feature of the supermarket industry is that switching costs for consumers are very low. That makes it hard to keep customers, but easy to win them back if they go elsewhere.

Tesco, however, has some unique strengths in this area. Its scale means itâs a convenient choice for a lot of people and gives it negotiating power with suppliers.

Whatever else has been happening over the Christmas period, this hasnât changed. And itâs a key long-term strength that sets the firm apart from its rivals in an important industry.

A buying opportunity?

A differentiated business in a durable industry can be a great investment. And despite underperforming Sainsburyâs over Christmas, Tesco is still the market leader by some margin.

Since Iâm sceptical about the long-term threat, I think the stock is clearly better value than it was a week ago. But Iâm not convinced itâs cheap enough to be my top idea right now.

Itâs staying on the list of shares Iâm watching, but Iâm not buying it yet. One of the things Iâve learned in recent years, though, is that opportunities do present themselves sooner or later.

The post What’s going on with Tesco shares? appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.