Wednesday 06 July 2016 2:39 pm

Supermarket sell-off: grocers’ share prices fall as HSBC analysts predict Asda will cut prices

The big grocers' share prices fell today after analysts said Asda may cut its prices, trimming the industry's profits and intensifying the supermarket price war.

HSBC analyst David McCarthy said: "We believe there are signs that Asda may be about to fundamentally reposition on price, bringing down sector profits.

"Asda has been the UK's most profitable retailer and has the firepower to hurt industry profitability, forcing capacity out."

Tesco's share price was the worst hit from the big grocers, down 8.82 per cent in afternoon trading. Morrison's share price fell by 6.78 per cent and Sainsbury's fell by 3.32 per cent.

HSBC said that due to increased risk and uncertainty, they were downgrading Tesco from Buy to Hold and Morrisons from Hold to Reduce. The analysts kept Sainsbury's at Reduce.

McCarthy said: "The chief executive of Walmart stated recently that Asda will prioritise sales over margin.

"We believe this suggests Asda may be preparing a major price repositioning. If Asda does reposition fundamentally, then it could seriously damage sector profitability.

"Asda has learnt if it prioritises margins, it will lose its sales, which then leads to a falling margin. Better a company invests its margin to reward its customers and to protect its sales than to see margins eroded by the competition."

He said it was significant that Walmart's comments were made to shareholders and not journalists – and that it was the international head of the company that intervened.

"If Asda does nothing now, and sales continue to decline, International management would lose credibility," McCarthy said.