Britain's Tesco to address Asda pricing challenge

By James Davey

LONDON (Reuters) - Tesco reports full-year results on Thursday, giving Britain's biggest supermarket group a platform to respond to rival Asda's move to lower prices that sent shares in the listed grocers tumbling.

Asda, the UK's number three food retailer, said last month it would take a hit to profit to finance a shift to a lower price-point strategy that it hopes will recover lost market share.

Tesco shares are down about 8% since Asda's announcement on investor fears of a supermarket price war.

However, most analysts think that scenario is unlikely, noting that prices are rising in the UK grocery market as a whole.

They question whether Asda has the financial firepower for a sustained price war, given that its majority owner, private equity group TDR Capital, is not putting additional equity into the business. They also highlight that Tesco and number two player Sainsbury's have stronger balance sheets than Asda.

Tesco's results "will be an important staging post to test the mood music of the market leader on such matters, we sense a mature, resolute and professional approach will ensue," Shore Capital analyst Clive Black said.

Analysts at Bernstein looked at more than 550 own label products that Tesco price matches with discounter Aldi, the number four player, and compared prices with Asda.

"Tesco and Aldi do not massively need to react. They are winning on price perception," it found.

Monthly industry sales data shows Tesco has performed robustly so far in 2025 - the latest data gives it a 27.9% share of Britain's grocery market, up 60 basis points on the year.

Tesco has guided for the year to February 2025 retail adjusted operating profit of around 2.9 billion pounds ($3.8 billion), up from 2.76 billion pounds in 2023/24.

Analysts expect Tesco to flag growth in 2025/26, despite a jump in costs due to higher social security payments, a hike in the national minimum wage and a new packaging levy.

($1 = 0.7681 pounds)

(Reporting by James Davey; editing by Barbara Lewis)