The UK’s Supermarket giants have lost more than £3.5billion in market value after Asda revealed plans for a major price war.
Tesco, Sainsbury’s, and Marks & Spencer saw their share prices tumble as investors reacted to the prospect of intensified competition in the grocery sector.
The market reaction came after Asda revealed intentions to implement a “substantive and well-backed programme of investment” aimed at winning back customers.
Allan Leighton, Asda’s chairman, stated the company has “a pretty significant war chest” to tackle years of weak trading at the Leeds-based supermarket.
Tesco, the UK’s biggest supermarket, took the heaviest blow with shares plunging 10-11.5 per cent by Monday lunchtime. Sainsbury’s, Britain’s second-largest grocery chain, saw its stock fall by approximately 8-8.5 per cent.
Marks & Spencer wasn’t spared either, with shares dropping 7-7.5 per cent since Asda’s Friday announcement.
The supermarket saw sales drop five per cent in the latest financial reportASDAThe dramatic falls made Tesco and M&S the two biggest fallers on the FTSE 100 index of Britain’s largest listed companies.
Analysts suggested the market reaction reflected serious concerns about potential margin pressure as supermarkets prepare for intensified price competition.
Asda’s strategy centres on regaining lost market share through significant price investments and store improvements.
Leighton, who returned to Asda as chairman last November, said the investment would help the supermarket win back customers after years of decline.
The company plans to focus on cutting prices, improving product availability and modernising stores.
While Asda declined to specify the exact investment amount, it acknowledged spending plans would lead to a “material reduction” in profitability.
Leighton emphasised these measures would make Asda “incredibly competitive again” at a time when customers are seeking value.
Asda has experienced a significant decline in market position since its £6.8bn acquisition by the Issa brothers and private equity firm TDR Capital in 2021.
Its market share has slipped from 14.6 per cent to 12.6 per cent during this period, according to industry data from Kantar.
Recent figures suggest sales were down a further five per cent year-on-year in the four weeks to February 23. This decline represents lost sales worth millions of pounds.
Tesco, Sainsbury’s, Marks & Spencer and others have capitalised on Asda’s weakness to attract more shoppers.
Leighton has stated it could take up to five years to turn around the struggling retailer. Analysts at Jefferies said Asda’s push would likely be felt “across the industry”.
Frederick Wild, a retail analyst at Jefferies, noted that “market conditions are changing rapidly”, suggesting listed grocers’ values would remain under pressure short-term.
However, Wild questioned “whether Asda has the ability to commit to the scale of cuts outlined” without improved volume growth.
Clive Black of Shore Capital described Asda’s announcement as a “clear and necessary indication of intent” but one “set against a sceptical and reluctant supply chain”.
Black questioned: “Could Asda’s actions mean greater price competition that squeezes the margins of others?”
Tesco, Sainsbury’s, Marks & Spencer and others have capitalised on Asda’s weakness to attract more shoppers
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Asda has already reintroduced its “Rollback” programme on prices, where products are reduced for 12 weeks before a new price is set. This promotion was first introduced in the mid-1990s during Leighton’s previous tenure at Asda between 1996 and 2000.
Speaking on Friday, Leighton emphasised the scale of planned price investments: “To give you some idea, this would be probably the biggest investment in Asda on Asda Price and Rollback since I did it before so it’s that significant.”
He rejected quick fixes saying: “I could get the sales up tomorrow by doing a load of promotions but that is not the answer.”
Despite concerns, Black maintained profit predictions for Tesco and Sainsbury’s, noting that “the listed players are better grocers than Asda with a broader customer set, stronger balance sheets and a will to remain competitive”.
Industry experts suggest the supermarket sector faces a period of margin pressure as retailers compete for price-conscious shoppers
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Industry experts suggest the supermarket sector faces a period of margin pressure as retailers compete for price-conscious shoppers.
Asda’s aggressive strategy marks a significant shift in the competitive landscape.
The market reaction highlights investor anxiety about potential profit squeezes if major chains are forced to match Asda’s price cuts.
How sustainable Asda’s price war will be remains a key question for the sector.