Will Tesco PLC Win The Supermarket Price War?

Tesco PLC’s (LON:TSCO) resilience should make it a winner

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.


There’s a whiff of war in the air: not — thankfully — in the swathe of no man’s land between NATO and Russia but in the high streets, malls and cyberspace where the supermarkets slug it out over basis points of market share.


Hostilities are intensifying. Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) mobilised last month, announcing it was scrapping its long-standing commitment to a 5.2% margin. It fired an opening salvo with cucumbers, carrots and milk, ‘investing’ £200m to lower basic prices.  Last year Asda revealed a £1bn war-chest to lower prices of grocery staples.

Morrisons (LSE: MRW) has announced permanent price cuts. The beleaguered supermarket is fighting on two fronts.  With its heartland in the less-affluent North, it’s been hardest hit by the incursions of hard discounters Aldi and Lidl. It’s also under attack from disgruntled investors unhappy with its performance and late arrival to the fields of convenience stores and internet shopping.


The peacetime state for the supermarket sector is that firms compete on price, quality, convenience and value for money. What has heightened tensions is the pressure on the four mainstream supermarkets built up over half-a-decade of austerity. On the one side, the hard discounters offering consistently lower prices, though narrower product ranges, have attracted a wider customer base. On the other side, premium-quality firms Waitrose and Marks and Spencer have developed price-competitive offerings.

What I think we’re seeing now is the growing acceptance by the mainstream supermarkets that they have to fight back on price, or the shape of the grocery sector could change significantly once consumers start to feel more confident in their spending habits.


It’s a gradual slide into a price war that will hurt all four supermarkets, but could ultimately see them push back against the ground won by the arrivistes. The sector is likely to be one of the last to gain from a resurgent UK economy — shoppers will benefit at the expense of investors. But in the long run a price war will secure the market position of the big four supermarkets.

Tesco has most to gain. With its near 30% market share and much bigger market capitalisation, it has deeper resources to see out a price war. Sainsbury is constrained by its lower margins and recent change of leadership, which will inhibit bold moves. Morrisons is hobbled by its geographic bias, past strategic mistakes, and activist shareholders seeking short-term profit.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

 Tony owns shares in Tesco and Sainsbury. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.


More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »

Investing Articles

If I’d put £5,000 in Scottish Mortgage shares at the start of 2024, here’s what I’d have now

Scottish Mortgage shares have staged a recovery lately, powered by the public and private growth stocks held in the portfolio.

Read more »

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 tracker fund 5 years ago, here’s what I’d have now

Investing in a FTSE 100 index fund is a terrific way to start building wealth passively with minimum effort. But…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

What’s going on with the Scottish Mortgage share price now?

The Scottish Mortgage share price is up 30% over the past 12 months, outperforming the index. Our writer explains why…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Here’s how investing £10 a day could create passive income of £27,573 a year!

Charlie Carman explains how he'd build a sizeable passive income portfolio over time by investing a tenner a day in…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

If I’d invested £10k in Greggs shares two years ago here’s what I’d have today

Harvey Jones wishes he'd bought Greggs shares two years ago and wonders whether the FTSE 250 stock still offers the…

Read more »