Fears that Tesco is to spark a new price war sent shares in supermarket rivals plummeting yesterday.

Shares in Sainsbury’s fell by 2% yesterday, while Ocado was hit even harder. The online retailer saw its share price slump by 11%.

Ocado matches its price on many key brands against Tesco, while Sainsbury’s last month began trialling its Brand Match scheme, benchmarked against both Asda and Tesco.

Yesterday it emerged that Tesco is poised to shift away from complex promotions to place more emphasis on everyday low prices.

“The impact of such a move by Tesco would be wide-ranging and heavily felt across the industry,” Evolution Securities analyst Dave McCarthy said in a note issued yesterday.

“Morrisons would not be unaffected but with a substantial self-help programme would be able to cope to a large degree. Sainsbury's would come under significant pressure.”

Nomura analysts said a major push by Tesco would be “tough to follow” for rivals.

“With Sainsbury possibly gearing up to rollout its 12-store Brand Match trial, we think a move to sharpen pricing and emphasise Tesco’s value credentials will be well received by cash-strapped consumers,” the broker said.

“Tesco has consistently distanced itself from the ‘mutually assured destruction’ that would result from rebasing industry margins. We therefore believe that any repositioning will be funded by reallocating resources from existing advertising and promotional budgets, in addition to working in partnership with branded suppliers.”

Panmure Gordon analyst Philip Dorgan added: “This will cut through the fog of promotions and concentrate on very low pricing. It should put Tesco on the front foot.”

Read more
Tesco gears up for massive new pricing offensive (21 September 2011)
Sainsbury’s aims for simplicity with new Brand Match scheme (20 August 2011)