Asda fallout: Tesco, Sainsbury's and M&S shares keep falling as analysts eye impact

Shares in Tesco PLC (LSE:TSCO) and Marks and Spencer Group PLC (LSE:MKS) continued to fall on Monday as analysts weighed in on Asda's new turnaround plans and the potential impact on the wider sector, including what reactions there might be in terms of pricing strategy. 

Asda Stores Ltd said on Friday that it plans a "significant programme of strategic price investment" in 2025, with industry heavyweight Allan Leighton having been brought in to lead the company after losing market share under joint ownership by the Issa brothers and private equity group TDR.

Leighton reported early progress in lowering prices across its entire range as part of its Rollback to Asda Price strategy at the end of January.

This led to a rout in Tesco, Sainsbury and to a lesser extent Marks & Spencer on Friday. Falls continued on Monday, with Tesco and M&S down 2%, J Sainsbury PLC (LSE:SBRY) down 1.3%, while B&M European Value Retail SA (LSE:BME) shares rose 2.6% after falling to multi-year lows on Friday.

Will Tesco and Sainsbury's fight back on price?

Analysts at Citi suggested two scenarios to assess the potential impact of a resurgent Asda on listed rivals.

In the first, if Tesco and Sainsbury's decide to "materially under-inflate" versus the rest of the grocery market - ie raise prices more slowly or even cut, to prevent share losses to Asda given its material price investment plans.

Assuming the FTSE 100 pair lift prices 2% in the year to February 2026 - compared to the current Citi estimate of 3.5% and 4.0% - this would result in -11% and -20% EBIT reductions respectively, Citi predicted.

Free cash flow would be down -14% and -26% respectively for Tesco and Sainsbury on the Citi estimates too, assuming no change in operating expenses or cost of goods sold.

Under a second scenario, if both inflate prices in-line with the market, ie 3.5%-4.0%, but Asda regains 100% of its current market share that Citi estimates it lost to the big two in the past year, this would result in a -0.9% and -0.5% revenue headwind for Tesco and Sainsbury this year, a -21% and -17% EBIT reduction, and a -26% and -22% free cash flow reduction respectively.

How much could Asda invest?

"Clearly, market conditions are changing rapidly," says analyst Frederick Wild at Jefferies.

He says "it remains far from clear whether ASDA has the ability to commit to the scale of cuts outlined on Friday if volume growth does not improve measurably in the coming weeks and months.

"Until this evidence arrives, we expect sector valuations to remain pressured."

Clive Black at Shore Capital says: "Asda’s market share seepage has been a key feature UK grocery retailing this decade, but its duration becomes more, not less, worrying to us as the necessary steps to stabilise become costlier."

He salutes a "definitive management change", with Leighton - 'Big Al' - brought in as "a clear and necessary indication of intent to invest in the price and proposition".

On what the impact will be for the rest of the sector, Black said the nervousness displayed in the shares of listed UK grocers was an "understandable" knee-jerk.

B&M and Tesco impact, M&S and Sainsbury's 'less exposed'

From a direct commercial impact in terms of store adjacencies and customer switching, Black said mostly this would hit the likes of B&M, Iceland and Morrisons and "because of its scale, Tesco may notice some ripples too".

"Whilst no one is immune to the chess moves of others, Marks & Spencer, Sainsbury's, and Waitrose would singularly appear less exposed we contend, as would Aldi and Lidl with their stronger private label assortments."

If Asda was a listed firm, the announcement last week "would have amounted to a profit warning", said Black, though he noted that Leighton characterised it as an investment, backed up by notable resources.

"The clear message here being, however, that this next phase of Asda's commercial strategy is something more serious, more committed, and better thought-through.

"We do not know the magnitude of the forthcoming investment programme yet, but it is important to state that it covers not just pricing, embracing service levels and availability too."