Speculation is mounting that grocery and general merchandise giant Tesco is preparing to launch a price offensive next week, sparking concern of a new price war.
Tesco is understood to be planning to focus on permanently low prices and may even shift away from promotions. A tie-up with its Christmas campaign and Clubcard are also thought likely.
The retailer was said by industry sources to be particularly gunning for Asda, but the repercussions of the initiative are likely to be felt across the grocery sector.
It is understood that Tesco has bought a considerable amount of point of sale material for the launch and has called all store managers to a meeting on Sunday to discuss the campaign.
Panmure analyst Philip Dorgan said: “We believe that the investment will be large and will raise investor concerns that a price war will begin which, when combined with the significant increase in supply, would lead to a destruction in sector returns.”
Seymour Pierce analyst Kate Calvert said: “Pricing activity is expected to hot up this weekend with talk in the market that Tesco will be launching a new campaign in-store.
“The autumn is traditionally a very competitive time for the food retail sector and the reduction in promotional activity in August seemed to suggest that the industry was building up firepower.”
Shore Capital analyst Clive Black said he does not expect a price war. He said: “If Tesco started a price war, by which we mean significant gross margin investment and a significant downgrade to short-term earnings at least, we would not be recommending the stock on our Buy roster.”
He said a price war would not be consistent with management’s aspirations to improve capital returns in the short or medium term.
He added though that Tesco could be plotting marketing initiatives for a variety of reasons, not least to stimulate UK trading. He said he would not be surprised to see initiatives involving Clubcard to bolster loyalty and footfall in the run up to Christmas.