Tesco’s CEO has warned of a “mounting price war among UK supermarkets”, with conditions in the sector becoming “very competitive”, says Isabella Fish in The Times. The country’s largest grocer is to “double down on cost cuts” in addition to lowering its profit forecast by up to £400 million for the year, from £3.1 billion to between £2.7 billion and £3 billion. The move comes after Asda recently pledged to “deliver its biggest round of price cuts in a quarter-century”, a move that has already wiped billions off competitors’ market values.
No wonder Asda has decided to cut prices, says Hannah Boland in The Telegraph. It needs to do something to “stop the rot”. Its market share has dropped from 14.8% to 12.6% in the last four years alone, with overall sales “slipping”. This represents an “existential” problem for a company “lumbering” under a £3.8 billion debt pile following a £6.8 billion takeover in 2021 by private equity firm TDR Capital. Viewed in this context, the price cuts seem to be an attempt to return to the “tried and tested strategy” that was credited with “fuelling a major upswing at Asda in the 1990s”.
Can Tesco keep up with its rivals?
It’s good news that Asda’s decision to try to win back some market share by lowering prices has “spooked” rivals such as Tesco, who are now “running scared”, says James Moore in The Independent. After all, it’s only fair that investors are now feeling a little pressure, given that Tesco has been “lining [its] pockets with gold”, with £864 million spent on dividends as well as another £1 billion on buying back shares. These numbers “tell you all you need to know” about who has been winning the “battle” between retailers and their customers, so “it is about time the scales tipped back” towards the latter.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Price cuts may be “good news” for consumers, but it’s important not to overstate the threat they pose to Tesco, says Ian King on Sky News. While Tesco and Sainsbury’s have the “most to lose” from a turnaround at Asda, they are also “better placed than anyone else to withstand one”. Tesco’s Clubcard is “arguably the world’s most successful supermarket loyalty and rewards scheme”, providing the grocer with “data and insights no one else has, enabling it to react fast to changes in the market or to shoppers’ habits”.
Tesco has certainly shown that it is capable of matching rivals on price in the past, including the German “interloper” Aldi, says Alex Brummer in the Daily Mail. But the prospects of a price war between the major supermarkets that could hit profits isn’t the only reason why Tesco’s investors “aren’t terribly happy”. Its share price is also suffering from fears that consumer confidence is dwindling, while the £235 million hit to income from the national insurance increase and the impacts from the Employment Rights Bill are “still to be felt”. Nevertheless, the overall sector is less vulnerable than many think: “even in recession people want to eat well”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Are you one of 15 million people at risk of retirement poverty?Two-fifths of people in the UK aren’t on track for a minimum lifestyle in retirement, new data shows. Are there steps you can take to boost your pension?
-
150 banking hubs now open across UK – is there one near you?As the 150th banking hub opens its doors, a Post Office deal that offers basic banking services has also been extended until 2030. We explain what this means for you
-
Can a rebrand save WH Smith?Opinion WH Smith's high-street shops have had their day and a change of owner is unlikely to turn things around, says Matthew Lynn
-
Greggs’ enduring recipe for success on the high streetGreggs grew from a shop founded in Newcastle after the war into a national treasure. Profits will continue to roll in for patient investors, says Jamie Ward
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
-
4Imprint makes a strong impression – should you buy?4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
-
Nestlé is in trouble as it pushes prices upNestlé has pushed up prices for customers and now it's suffering the consequences, leaving a spotlight on its performance and shares
-
Dr Martens shares slump: should you give it the boot?Over the past three years, Dr Martens has fallen out of fashion. Are the shares worth a look?
-
Will Topshop return to the UK high street?Despite Asos selling a £135 million stake in Topshop, is there a chance for the retailer to make a comeback on the high street?
-
Takeover bid for Japan's 7-Eleven owner from Canadian chainThe Japanese operator of 7-Eleven convenience stores is being wooed by a Canadian peer. But securing a deal won’t be easy
