Tesco PLC's (LSE:TSCO) and J Sainsbury PLC's (LSE:SBRY) shares have struggled this year – shares in the former are down 14% in the last week, and stock in the latter is off 15%.
But analysts at RBC Capital Markets see the sell-off as a buying opportunity, arguing that concerns over a potential price war sparked by Asda’s aggressive discounting may be overblown.
While Asda has launched deep price cuts in a bid to regain lost market share, RBC believes Tesco and Sainsbury’s have the scale, loyalty schemes, and supplier relationships to defend their positions without resorting to a damaging margin squeeze.
UBS analysts echoed that sentiment, noting that Asda’s market share has been in steady decline for years, falling to 12.6% from 15.5% in 2019, according to Kantar data.
While Asda still has a reputation for being slightly cheaper than Tesco, it ranks lowest among the big supermarkets for overall customer experience, product availability, and net promoter score – a measure of how likely customers are to recommend a retailer.
UBS argues that while Asda’s price cuts could help in the short term, the retailer faces deeper structural issues, including underinvestment in stores and high levels of debt.
In contrast, Tesco and Sainsbury’s remain dominant in the mainstream grocery sector and are likely to respond selectively rather than engage in a full-scale price battle.
Both RBC and UBS acknowledge that Tesco and Sainsbury’s will need to make some pricing adjustments to stay competitive, but they believe the financial impact will be manageable.
UBS has trimmed its price targets for Tesco to 360p (from 410p) and for Sainsbury’s to 279p (from 321p) but continues to have ‘buy’ ratings for both.
The bank now expects Tesco and Sainsbury’s to see a 3% decline in retail earnings before interest and tax (EBIT) in 2026, compared with its previous forecast for 5-8% growth.
However, it sees the market’s reaction as overly negative, arguing that Tesco’s scale, cost-saving measures, and strong cash flow provide a buffer against Asda’s moves, while Sainsbury’s more premium positioning means it is less exposed.
With both stocks trading at a discount to historical valuations, analysts see room for recovery as investors gain confidence in their ability to navigate the competitive landscape.