Tesco, Sainsbury’s, and M&S Lose £4bn Amid Asda Price War
The UK’s grocery sector is in turmoil, with more than £4bn wiped off the value of Tesco, Sainsbury’s, and Marks & Spencer’s stock. This unprecedented drop has been driven by fears surrounding the “Asda Price War,” as supermarket rival Asda shifts its focus on aggressive price cuts to reclaim market share.
How the Asda Price War Could Transform Grocery Retail
Tesco took the largest hit with its share price falling over 12% on Monday, followed by an 8% decline for Sainsbury’s and a 9% dip for Marks & Spencer. These declines stemmed from concerns over diminishing profitability caused by Asda’s decision to invest heavily in slashing prices while boosting its in-store workforce.
Frederick Wild, a retail analyst at Jefferies, noted that “market conditions are changing rapidly.” Major players like Tesco and Sainsbury’s may need to adopt competitive pricing strategies to survive this new wave of grocery price wars. Yet there is scepticism surrounding whether Asda itself can commit to such cuts if sales volumes do not improve.
The Lawn of Rising Costs and Wage Adjustments
Supermarkets have already been grappling with heightened operating costs due to factors such as increased national insurance contributions and higher wages. Tesco, for instance, announced it will increase basic pay for shopworkers from £12.02 to £12.45 an hour by the end of the month and to £12.64 from August. However, this pay rise comes as the retailer removes the 10% premium paid for Sunday shifts.
With rising costs eating into margins, adding a price-cutting war to the equation further complicates profitability for all grocery leaders involved.
Asda Price War Adds Pressure on Rivals
Amid these challenges, Allan Leighton, who assumed the chairmanship of Asda, signalled big ambitions in stabilising the retailer. On Friday, Leighton mentioned having “a pretty significant war chest” aimed at addressing weak trading results and a declining customer base. Over the past year, the retailer has lost over 1% of its market share, equating to millions in lost sales to competitors like Tesco and Sainsbury’s.
Leighton even acknowledged that a full recovery could take as long as five years, but he stressed the importance of immediate measures. Still, retail analysts indicate doubts about the long-term feasibility of such deep cuts.
Recovery Hinges on Strategic Cuts
Clive Black, head of research at Shore Capital, praised the “necessary intent” shown by Asda to reinvest in price and customer propositions. However, he cautioned about potential fallout from supplier discontent and market instability. “The greatest concern is irrational contagion leading to lower gross margins and earnings,” Black said.
He emphasised that Tesco, Sainsbury’s, and M&S are “better grocers than Asda” due to broader customer bases, stronger financial stability, and competitiveness. Smaller scale retailers are less equipped to endure prolonged price wars, further amplifying market uncertainty.
A Supermarket Industry in Flux
The competitive landscape of the UK’s grocery sector has undergone dramatic changes since 2021, when the Issa brothers and private equity firm TDR Capital acquired Asda for £6.8bn. Following this buyout, missteps in leadership and strategy have left the retailer struggling.
Despite retaining a 22.5% stake in the business, Mohsin Issa, who co-led operational efforts, stepped back last year. TDR now remains in control, and the organisation’s renewed focus on price slashing signals an attempt to regain lost ground.
Meanwhile, competitors are bracing for the long haul, striving to counteract the effects of a heated rivalry. Analysts say that Tesco and Sainsbury’s remain in stronger positions to weather the storm, provided they maintain stringent cost control measures and strategic expansions into high-demand product areas.
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