Every little helps! It was about time Tesco joined Britain’s supermarket price war

Allan Leighton’s plans to revive Asda have put the fear of God into his rivals, writes James Moore. In a welcome development for shoppers, this includes Tesco, whose shareholders have had it too good for too long

At last, a break for the punch-drunk British shopper. If you, too, are tempted to turn the news off amid the myriad economic horrors unfolding at the hands of President Trump, then a rather vicious price war between our major supermarkets might give cause for cheer.

The US president blinked, pausing the majority of his punitive tariffs for 90 days, which injected a dose of amphetamine into the world’s reeling stock markets. The FTSE gained hundreds of points in a relief rally as investors mopped their brows. But Tesco’s shareholders were notably absent from the party.

Britain’s biggest supermarket group saw more than £1bn wiped from its market value as it warned of lower profits this year because of its need to find “firepower to be able to respond to current market conditions”. Translation: the competition is getting hot and to protect the market share we’ve been gobbling up – the results statement crowed about “21 consecutive four-week periods” of making gains – we will have to respond.

Tesco’s annual results showed just about every metric moving in the right direction, with sales and dividends up and debt down. As ever, it reported multiple measures of profits. Tesco’s favourite – what it calls “adjusted operating profits” – leapt 10.6 per cent to £3.1bn. The more traditional statutory measure of pre-tax profits, factoring in things like financing costs and one-off charges, was 3.2 per cent lower at £2.2bn.

Nonetheless, this was all better than what had been pencilled in by the City’s scribblers. Here is a company in rude financial health, a company that has been printing money for fun and pouring it into the gaping maws of its hungry investors.

‘Tesco CEO Ken Murphy warned that the current year’s “adjusted” operating profit figure could be as much as £400m lower’ (AFP via Getty)

None of that mattered to the market because this was last year’s news. The future looks cloudy. CEO Ken Murphy warned that the current year’s “adjusted” operating profit figure could be as much as £400m lower. There is an awful lot of firepower to shoot at prices, and it is needed.

The problem facing Tesco and the other big supermarkets is that Asda has had enough of seeing its market share regularly covered in red ink when researcher Kantar releases one of its updates. The private equity firm, which is now Asda’s majority owner, wants to see better returns from its investment. To this end, Asda did just about the best thing a struggling retail business can do. It hired Allan Leighton to be its executive chairman.

Leighton was responsible for one of the more remarkable retail turnarounds this country has witnessed. He became the chair of Co-op when there were very real fears that this venerable institution was doomed. Under his oversight, the business was slimmed down, the quality of its management was dramatically improved, and a successful strategy was put to work.

Asda is a much bigger fish, but it is in far better health than Co-op was when Leighton rode into town. He knows the company well. He is a former CEO of the group who oversaw its acquisition by Walmart in 1999 and then had a spell running Europe for the wildly successful American retailer.

Leighton understands that the customers who’ve turned their backs on Asda need a carrot to lure them back. That carrot is more competitive prices. In a bad economy, in which a lot of people are carefully managing their finances, this has got Tesco spooked. Remember, there was a time when Asda was snapping at its heels as Britain’s second biggest supermarket. Leighton would clearly like to get back there: don’t bet against him.

Sainsbury’s shares were also absent from the FTSE’s party, with hundreds of millions wiped off the second-place supermarket’s share price. M&S, part owner of Ocado’s UK business, took a beating too. Both will have to act. “Fears over supermarket price war,” said one news outlet. Fears? Who is afraid of this?

That would be investors, but they really have no cause for complaint given that Tesco has been lining their pockets with gold. The total spend on dividends for the 2024/25 financial year comes to £864m. A further £1bn went on buying back shares, another means of returning cash to investors – the aim is to reduce the number of shares in issue and thus boost the price.

Supermarkets have to strike a balance between the interests of investors, employees – Tesco’s in-store workers enjoyed an inflation-busting 5.2 per cent rise last year – and customers.

The numbers tell you all you need to know about who has been winning that battle. Customers have been losing out to investors for too long. It is about time the scales tipped back their way. Leighton will make sure they do, and he has his rivals running scared. Good.