Supermarket giant Tesco will need to continue to offer customers “genuine” price reductions throughout Christmas in response to its drop in market share, according to retail analysts.

Following the release of its third-quarter interim results, Tesco was the only supermarket among the big four to see its market share fall. During the 12 weeks, ending 27 November 2011, shares dropped from 30.7% to 30.5% year-on-year, according to figures from Kantar Worldpanel.

David Gray, UK retail analyst at Planet Retail, said Tesco’s first £500m Big Price Drop campaign in September offered customers “genuine” savings on everyday products.

Gray added: "The campaign came in response to a difficult consumer trading environment, but it proved to be successful. Tesco saw an increase in food volume being purchased by customers and that was its main objective. So this is something that could help the business in its next quarter-year results.”

The UK’s largest retailer reported a drop of 0.9% in revenue at UK stores open at least a year, excluding fuel and value-added tax. However, its overall sales growth was reported to be healthy at around 3.8% compared to a year ago.

Gray said: “Tesco improving its ranges and in-store layouts has contributed to its improvement in like-for-like results, which are similar to those seen in the last quarter. Results have remained similar over the past seven quarters for the business, and Tesco is in a good position and has remained stable.

"The challenge for Tesco, and other supermarkets alike, will be to retain customers. More people are using multiple retailers and shopping around for the cheapest prices in such difficult economic times."

Phillip Clarke, chief executive of Tesco, said: “We have made good progress in our third quarter against the background of challenging conditions for consumers in many of our markets.

“In the UK, our increased investment in the shopping trip for customers is starting to deliver. The Big Price Drop campaign, now in its second phase, has lowered prices significantly for hard-pressed families and we are now being rewarded with stronger food volume growth.

“While I am pleased with these early signs of stronger performance, a great deal more remains to be done and we are confident of delivering further improvements as we implement our plans.”

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