Supermarket retailers in the United Kingdom might be forgiven for thinking a price war truce might be overdue, but HSBC believes a fresh battle may be just around the corner.
In a note published Wednesday, the bank's food and retail analysts said Wal-Mart International CEO David Cheesewright, had been clear that subsidiary grocer Asda is set to prioritize sales over profit.
"We believe this suggests Asda may be preparing a major price repositioning. If Asda does reposition fundamentally, then it could seriously damage sector profitability," said the note.
In the 12 weeks to 19 June, Asda sales dropped 5.8 percent according to figures from Kantar Worldpanel.
HSBC said Asda needs to gain price leadership as prioritizing margins will only lead to further loss of its deal – hungry customers.
HSBC also stated the message on price was intended for shareholders and any inaction from Wal-Mart International now would be interpreted as an absence of conviction.
The analysts also suggested the comments serve as a warning to what discounters can expect in the U.S. market.