The value of shares in Tesco, Sainsbury’s and Marks & Spencer has fallen by a total of around £3.5bn since Friday afternoon amid fears that Asda will sacrifice profit in a grocery price war to win back market share.
Tesco took the biggest hit; its share price was down 10% by lunchtime today, while Sainsbury’s slipped 8%, and Marks & Spencer’s fell 7%.
The drops came after Asda said its profits were likely to fall this year as it invested more in cutting prices and overhauling its operations to tempt shoppers back to its stores.
Analysts stated that it was likely that Tesco and Sainsbury’s profits would be squeezed by having to lower prices to compete.
Frederick Wild, a retail analyst at Jefferies, said it was clear that “market conditions are changing rapidly”, meaning the value of the listed grocers was likely to remain under pressure in the short term. “We would be more sceptical of any grocer found to be flat-footed in this changing environment,” he added.
However, Wild said it was “far from clear whether Asda has the ability to commit to the scale of cuts outlined on Friday if volume growth does not improve measurably in the coming weeks and months”.
Asda’s new Chairman, Allan Leighton, said on Friday he had “a pretty significant war chest” to tackle several years of weak trading at the supermarket.
In January, he reintroduced the ‘Rollback’ promotion of the 1990s. With an average reduction of 25% across 4,000 products, Rollback has now been expanded to roughly a quarter of Asda’s entire range, with it planning to add thousands more products at regular intervals to move its entire offering to a new low ‘Asda Price’ by the end of 2026.
Leighton told reporters at the end of last week that the aim was for Asda to be 5% to 10% cheaper than its rivals, though regaining customers’ trust would take time.
Clive Black, the head of research at Shore Capital, said Asda had made a “clear and necessary indication of intent to invest in the price and proposition” but this was “set against a sceptical and reluctant supply chain”.
Tesco took the biggest hit; its share price was down 10% by lunchtime today, while Sainsbury’s slipped 8%, and Marks & Spencer’s fell 7%.
The drops came after Asda said its profits were likely to fall this year as it invested more in cutting prices and overhauling its operations to tempt shoppers back to its stores.
Analysts stated that it was likely that Tesco and Sainsbury’s profits would be squeezed by having to lower prices to compete.
Frederick Wild, a retail analyst at Jefferies, said it was clear that “market conditions are changing rapidly”, meaning the value of the listed grocers was likely to remain under pressure in the short term. “We would be more sceptical of any grocer found to be flat-footed in this changing environment,” he added.
However, Wild said it was “far from clear whether Asda has the ability to commit to the scale of cuts outlined on Friday if volume growth does not improve measurably in the coming weeks and months”.
Asda’s new Chairman, Allan Leighton, said on Friday he had “a pretty significant war chest” to tackle several years of weak trading at the supermarket.
In January, he reintroduced the ‘Rollback’ promotion of the 1990s. With an average reduction of 25% across 4,000 products, Rollback has now been expanded to roughly a quarter of Asda’s entire range, with it planning to add thousands more products at regular intervals to move its entire offering to a new low ‘Asda Price’ by the end of 2026.
Leighton told reporters at the end of last week that the aim was for Asda to be 5% to 10% cheaper than its rivals, though regaining customers’ trust would take time.
Clive Black, the head of research at Shore Capital, said Asda had made a “clear and necessary indication of intent to invest in the price and proposition” but this was “set against a sceptical and reluctant supply chain”.
He said he was holding profit predictions for Tesco and Sainsbury’s at present. “Irrational contagion [on price cutting] lowering gross margin and earnings is the greatest concern, but we need to remember too that the listed players are better grocers than Asda with a broader customer set, stronger balance sheets and a will to remain competitive, too,” Black added.
NamNews Implications:
NamNews Implications:
- We are now entering ‘who blinks first?’ territory…
- One consequence has to be consumer reaction:
- “How can they afford a 25% average price reduction (when operating at a loss)?”
- Moreover, retailers that follow Asda may be subject to similar accusations.
- All leading to distrust of the retail brand…
- …with a knock-on impact on share prices.
- ...as Asda could be entering the ‘last chance saloon’?
