By James Davey
LONDON (Reuters) – When Sainsbury’s reports annual results on Thursday all eyes will be on whether Britain’s second-largest food retailer follows industry leader Tesco in forecasting lower profits this year to give it the flexibility to cut prices.
Last month, privately owned Asda, the number three player, flagged the start of a potential price war, saying it would take a hit to profits to finance a campaign of price cuts aimed at reversing a slide in its share of Britain’s grocery market.
Tesco responded last week, forecasting 2025/26 adjusted operating profit in a range up to 500 million pounds ($654 million) below analysts’ consensus expectations prior to its update, sending its shares down 6% and Sainsbury’s down 3%.
Tesco CEO Ken Murphy said he was sending a message: “Whatever the competitive environment and whatever comes our way, we’re capable of dealing with it.”
Sainsbury’s, which has a UK grocery market share of 15%, has guided to a 2024/25 retail underlying operating profit of 1.03 billion pounds, representing growth of about 7%.
For 2025/26 analysts are currently on average forecasting further growth to 1.08 billion pounds, but that could be under threat if, as seems likely, Sainsbury’s follows Tesco’s conservative approach.
Bernstein analyst William Woods likened the current state of UK food retail to an old Western movie.
“Each retailer gently ratchets up the pressure, unholstering their gun, taking aim and waiting to see who, if anyone, starts shooting,” he said.
But he added that while there has been some intensification in competitive positioning in the market, there is currently no irrational price war and he does not expect one.
Sainsbury’s has won market share over the last year, thanks to a strategy of matching discounter Aldi’s prices on key items and providing better prices for members of its Nectar loyalty scheme, financed by cutting costs.
About a quarter of Sainsbury’s sales are from non-food products versus about 7% for Tesco, making it more vulnerable to any knock-on effects on global shipping from the hike in U.S. tariffs.
($1 = 0.7642 pounds)
(Reporting by James Davey; Editing by Mark Potter)
