The air is suddenly full of talk about supermarket price wars.
Some £4.4bn was wiped from the stock market valuations of Tesco, Sainsbury’s and Marks & Spencer on Monday following comments from Allan Leighton, the executive chairman of Asda, on Friday in which he promised the grocer was planning its biggest price cuts in 25 years.
Mr Leighton, who returned to Asda last November, said there was a “war chest” available to Asda and indicated he was prepared to “materially” forego profits in the short term to win back market share.
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He told The Times: “We have a long way to go. We’re three months into what is going to be three years of really getting the basics of the business right and getting the business to outperform the rest of the industry on a like-for-like basis.
“That’s what restores our market share and profitability. It ain’t going to happen overnight.”
Those remarks are rightly being taken seriously by investors – by the market close on Monday Tesco shares had fallen by nearly 15% since Friday morning and those of Marks & Spencer and Sainsbury’s by 10% and 9% apiece.
That is because nobody, arguably, knows Asda better than Mr Leighton.
What’s gone wrong at Asda?
It was he, along with current Marks & Spencer chairman Archie Norman, who rescued Asda from collapse in the early 1990s before selling the business to US giant Walmart in 1999.
Initially, that transaction appeared to go well, with Asda wresting the number two slot in the UK grocery market from Sainsbury’s in 2003.
But Walmart’s insistence on preserving margins gradually saw its share eroded and the number two slot recaptured by Sainsbury’s.
By 2019, it was clear Asda was no longer regarded as a core asset by Walmart. That was the year an attempt was made, blocked by competition regulators, to merge the business with Sainsbury’s.
Worse was to follow.
In October 2020, Walmart offloaded a majority…
