Supermarkets TESCO SAINSBURYS AND M&S SHARES PLUNGE AMID ASDA PRICE WAR

Amid mounting concerns over a potential intensification of the ongoing grocery price war, over £4 billion has been wiped off the value of Tesco, Sainsbury’s, and Marks & Spencer shares. This stock market fallout follows Asda’s announcement of increased investments in price reductions and staffing enhancements in its stores.

Tesco, the UK’s largest supermarket chain, bore the brunt of the decline, with its share price tumbling by more than 12% as markets opened on Monday. Sainsbury’s, the second-largest grocer, saw a significant drop of over 8%, while Marks & Spencer experienced a 9% fall in value. Retail analysts suggest this is a response to concerns over margin pressures, as competitors may also need to slash prices to retain market share amidst growing economic uncertainty.

Asda’s decision to ramp up spending on price cuts is part of its strategy to combat a persistent fall in sales and regain market share. Despite these efforts, analysts remain sceptical about the firm’s ability to sustain long-term price reductions without substantial volume growth. The Leeds-based supermarket has reported declining profits under the leadership of its new chair, Allan Leighton. He insists that Asda has a “significant war chest” to address years of diminishing trading performance.

However, this aggressive move by Asda raises apprehensions for its competitors. Rising operational costs, including increased wages and higher national insurance contributions, have already placed considerable pressure on UK grocery retailers. On the same day, Tesco announced pay rises for their workers, increasing shop floor wages to £12.45 per hour by the month’s end and to £12.64 by August. The increase comes alongside the removal of a longstanding premium for Sunday shifts.

Industry experts caution that this extensive focus on price competition could erode gross margins across the market. Frederick Wild, a retail analyst at Jefferies, warns that “market conditions are rapidly changing,” and any brand seen as slow to adapt risks losing out. He notes that listed grocers such as Tesco and Sainsbury’s have superior financial stability and customer reputation compared to Asda, giving them a potential edge in navigating the turbulent market environment.

Despite ambitious restructuring efforts, which are expected to take up to five years, Asda continues to face significant challenges. Following its £6.8 billion buyout by the Issa brothers and TDR Capital in 2021, it has steadily lost market share. Competitor supermarkets have capitalised on Asda’s struggles, with sales figures revealing that the chain has lost over a percentage point in market share over the past year, translating into millions in lost revenues.

While the outlook remains uncertain, analysts believe that further price wars could deepen competition within the sector. Clive Black, of Shore Capital, highlights concerns over the “irrational contagion” of price cuts influencing weaker earnings across the sector. He emphasises that maintaining balance sheets while staying competitive will be vital for all players in this increasingly fraught environment.