More than £4bn has been wiped off the value of Tesco, Sainsbury’s and Marks & Spencer stock since Friday amid fears that rival Asda will step up the grocery price war.
Tesco, the UK’s biggest supermarket, took the biggest hit as its share price fell more than 12% on Monday, while second-place Sainsbury’s was down more than 8%, with M&S dropping 9%.
The falls came after Asda, the UK’s third-biggest supermarket chain, said its profits were likely to decline this year as it invested more in cutting prices and putting more staff in shops.
Analysts said it was likely that Tesco and Sainsbury’s profits would be squeezed by having to lower prices to compete.
Supermarkets are already under pressure from rising costs, including from changes to national insurance and higher wages. On Monday, Tesco said it was increasing basic pay for shopworkers from £12.02 to at least £12.45 an hour by the end of this month and to £12.64 from the end of August – 5.2% in total. However, it is removing a 10% premium that some workers receive on Sunday shifts.
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 chair, Allan Leighton, said on Friday he had “a pretty significant war chest” to tackle several years of weak trading at the Leeds-based supermarket, where sales have been falling despite inflation. Tesco, Sainsbury’s, M&S and others have exploited Asda’s weakness to win more shoppers.
Asda has lost more than a percentage point of market share in the past year, according to the industry analysts Kantar, a figure that represents sales worth millions of pounds.
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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,” he added.
Leighton has said it will take up to five years to turn around Asda, which has been struggling since a £6.8bn buyout by the Blackburn billionaires the Issa brothers and the private equity firm TDR Capital in 2021. TDR controls the business after buying out one brother, Zuber, while the other, Mohsin, stepped back from effectively running the retailer in September last year. He retains a 22.5% stake.
