Tesco and Sainsbury’s stocks tumble as Asda signals aggressive price cuts to reclaim market share.

The UK stock market has reacted sharply to Asda’s new pricing strategy, with Tesco’s share price dropping 13% and Sainsbury’s falling 8% in just a few days. Even Marks & Spencer, despite not being a direct competitor in grocery pricing, has seen a 6% decline.

Investors fear that Asda’s move to cut prices and regain market share could spark a supermarket price war, putting pressure on profit margins across the sector.

Asda has been struggling for years, first under Walmart’s ownership and later after the Issa brothers and private equity firm TDR took control in 2021, loading the company with buyout debt. Over the past five years, Asda’s market share has fallen from 15.1% to 12.6%, according to Kantar.

New Asda chairman Allan Leighton, who played a key role in reviving the business in the 1990s, has now returned with a back-to-basics strategy. His approach focuses on improving staffing levels, fixing operational issues, and widening the price gap with competitors.

Leighton has admitted that Asda will take a “material reduction in profit” this year, but he has not disclosed how much will be directly due to price cuts. Some analysts question whether the company’s goal is to recover all its lost market share or just stabilise its performance.

Analyst Frederick Wild from Jefferies suggests that a large-scale price war could require a fresh cash injection from TDR and Mohsin Issa. Whether they are willing to invest more capital remains uncertain.

Meanwhile, market conditions have changed significantly since Asda’s last major resurgence. Aldi and Lidl have expanded their UK presence, while Tesco and Sainsbury’s have built data-driven loyalty programs that help them compete more strategically.

Launching a full-scale price war could prove risky for Asda, given its weaker financial position compared to its rivals.

Barclays analyst James Anstead believes Asda’s revival is “unhelpful for sentiment” in the market but argues that a UK-wide price war is not inevitable.

Tesco and Sainsbury’s still have strong financial reserves, with Tesco expected to return £4bn to shareholders over the next two years, and Sainsbury’s distributing £1.36bn. Investors’ biggest fear is that these funds may be diverted into fighting off Asda’s challenge—but for now, such a scenario remains speculative.

While Asda’s revival is unsettling investors, the reality of an all-out price war remains uncertain. Supermarkets may yet find ways to compete strategically without destroying their own profit margins.