UK Supermarket Price War Heats Up as Asda Slashes Prices

Tesco and Sainsbury’s Brace for Battle as Asda Targets Market Share

A supermarket price war is brewing in the UK, with Asda firing the first shot by slashing prices on nearly a third of its range. Tesco and Sainsbury’s are preparing to respond, setting the stage for a competitive shake-up in the grocery sector.

While Tesco CEO Ken Murphy recently claimed there’s “no irrational price war”, the retail giant has warned profits could drop by up to £428 million this year — a clear sign it’s gearing up to defend its market lead.

Asda’s Aggressive Price Cuts Raise Investor Concerns

Asda’s executive chair, Allan Leighton, announced the company is willing to take a major hit to profits to fund price reductions. This move spooked investors, wiping over £4 billion off the combined market value of Tesco, Sainsbury’s, and Marks & Spencer.

Leighton aims to restore Asda’s identity as the UK’s lowest-priced supermarket, pledging to undercut rivals by 5–10%. Asda’s “rollback” pricing strategy — cutting prices on over 10,000 products since January — is central to this push.

However, analysts warn that even with recent cuts, Asda isn’t drastically undercutting Tesco. The supermarket’s £3.8 billion debt and high finance costs may also limit its ability to sustain a prolonged price war.

Tesco Still in Pole Position

Tesco remains the UK’s largest supermarket, with a 27.9% market share and the strongest margins among its peers. With an operating profit margin of 4.6%, it is better placed than Sainsbury’s (3.2%) and Asda (under 3%) to weather a pricing battle.

Murphy told analysts, “You can’t afford to blink in this industry,” signalling Tesco’s readiness to stay competitive. Sainsbury’s CEO Simon Roberts also noted pressure to cut prices, though he denied any direct reaction to market “noise”.

Can Asda Win Supplier Support?

Analysts suggest Asda’s weaker recent performance could make it harder to win supplier backing for promotions on branded goods. Many suppliers are hesitant, fearing that reduced margins won’t be offset by enough sales volume.

Ged Futter, a former Asda buyer, said suppliers “haven’t been given a big enough reason to back them.” Asda maintains it has long-standing positive relationships with suppliers, and insists it’s committed to long-term investment in pricing for “hard-working families.”

Rising Costs Could Limit Price Cuts

Despite the talk of a price war, real discounts may be limited. Inflationary pressures, including rising wages and an upcoming packaging levy, are squeezing supermarket margins.

Food inflation stood at 3% in March and is expected to rise. According to RBC analyst Manjari Dhar, “You’re unlikely to see prices falling — just less inflation than expected.”

Final Word

With Asda looking to reclaim its low-cost crown and Tesco defending its market dominance, UK shoppers could benefit from some welcome savings — though price cuts may be modest. Behind the scenes, debt pressures, supplier dynamics, and inflation will shape how far this supermarket battle really goes.

Source: (FT.com)