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Supermarket shares plunge amid Asda price cut reports

Published 06/07/2016

It is feared Asda's move could force a restructuring across the sector
It is feared Asda's move could force a restructuring across the sector

Supermarket shares have taken a hammering amid reports that Asda could slash prices over the summer and send profits plunging across the sector.

Tesco was one of the biggest fallers on the FTSE 100 Index, tumbling 8%, after HSBC analyst David McCarthy warned that Asda was eyeing a "major price repositioning" that could "seriously damage sector profitability".

Morrisons also came under fire, down more than 6%, while Sainsbury's fell 3%.

Mr McCarthy said his view followed comments from David Cheesewright, the boss of Asda-owner Walmart International, who suggested the British supermarket would begin to "prioritise sales over margin".

Mr McCarthy said: "If Asda decided to invest half its margin into price, a competitor reaction could wipe out almost all industry profitability and would force an industry restructure".

He added: "A summer move is the most likely timescale and if Asda has not price repositioned by then, the immediate risk could recede".

HSBC downgraded Tesco from buy to hold and Morrisons from hold to reduce, while also cutting its price target for Sainsbury's from 175p to 165p.

Asda boss Andy Clarke is to step down in July, with Walmart drafting in the head of its Chinese operations to lead the British firm.

Sean Clarke, who has also held top roles for Walmart in Japan and Canada, will take up the position of president and chief executive on Monday.

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