Marks & Spencer this week turned up the heat in the supermarket price war. The High Street store announced it aims to become a ‘shopping-list retailer’ where families buy food, but also cleaning products, toothpaste and other essentials.

M&S controls 3.8 per cent of the grocery market, having already gained more weekly shop customers. But the £6.8billion company is undergoing a reset, following the cyber-attack in the spring.

As chairman Archie Norman has conceded in the last few days, the incident could have destroyed M&S had its balance sheet been less strong. Four people have been arrested this week in connection with the crime.

Rivals may not yet be alarmed by the firm’s goal. But its resolve to ‘come back stronger’, as chief executive Stuart Machin puts it, is an alert to investors to review their High Street holdings.

As has become clear this week, the customers of all supermarkets must brace themselves for stealth taxes in the autumn Budget, as they continue to deal with cost-of-living pressures. Against this background, backing food companies can be seen as a defensive strategy since hard-pressed families will cut back in other ways, before they trim grocery expenditure.

But they will still be looking for great choices – and the best deals. If you want to take a bet on the likely winners in this battle to please our palates and our pockets, here’s what you need to know now.

Picking a fight: Marks & Spencer this week turned up the heat in the supermarket price war

THE RIVALS

This is a contest in which FTSE 100 companies Tesco, Sainsbury’s and M&S face-off against private equity owned groups Asda and Morrisons and the German discounters Aldi and Lidl. Waitrose is an arm of the John Lewis partnership.

Tesco, the number one player with a 28 per cent slice of the market, will not be surrendering any ground. Its Aldi price pledge covers 600 products. Nigel Yates, of Axa Asset Management, says Tesco has emphasised its ‘financial firepower’ – and its readiness to see profits fall to maintain its position. Profits for this year are forecast to be £2.7billion to £3billion, against £3.1billion last year.

Sainsbury’s, whose market share is 15.7 per cent, is also muscling up. Its Aldi price match covers 800 lines. Asda and Morrisons hold 12.6 per cent and 8.6 per cent respectively. Both have a pile of debt, but Asda is reported to be negotiating price cuts from suppliers to stay in the fight. The planning system is thwarting the expansion plans of Aldi and Lidl although they still have 10.3 per cent and 8.1 per cent of the market respectively. Waitrose has 4.5 per cent, out of which M&S wants to take a big bite.

The readiness of the players for the fray is undeniable. But challenges could impede their progress. Under the healthy food standard, supermarkets will be fined if they fail to offer discounts on more nutritious fare, and do not change loyalty schemes and store layouts to encourage shoppers to swerve the biscuits.

Weight-loss drugs are already changing eating habits. Last month the Kantar retailer consultancy reported a 0.4 per cent dip in grocery purchases, which coincided with a jump in the numbers using weight-loss jabs Ozempic or Mounjaro.

TESCO

Tesco shares have risen by 30 per cent over the past year, highlighting its transformation since the 2014 accounting scandal that imperilled its future.

Some of the advances are visible. As part of chief executive Ken Murphy’s resolve to provide ‘a powerful value proposition’, improvements have made to the upmarket Finest range.

Sales of Finest products rose by 18 per cent in the first quarter as they were sampled by more of the key ‘modern mainstream consumer’ group. They want an extra helping of style and quality. The more fashionable pieces in the F&F clothing line are targeted at these shoppers.

Yates highlights the breakthroughs that are less apparent in the group’s 4,008 stores. He says: ‘Tesco has built long-term sustainable relationships with suppliers, empowering them to invest in capital projects and automation. This has enabled innovation, ensuring fully stocked shelves and competitive pricing.’

Some of the most competitive pricing is reserved for the 23m Tesco Clubcard holders. I am a Clubcard holder, and a holder of a small chunk of Tesco shares. Last November, when the share price was 342p, I said in this column that I would be staying on board.

Analysts now rate the shares a ‘buy’ at their current price of 401p. I am not selling, especially as Yates alludes to the possibility of talk of a ‘re-rating surprise with a return to the ‘golden age of Tesco’. In 2007, the shares were above 600p. But investors should not hold their breath. Tesco, the UK’s largest private sector employer with some 330,000 workers, faces a £1bn bill over the next four years from the increase to employers’ National Insurance contributions.

Could there be another squeeze on this business and others in the sector in the autumn Budget?

SAINSBURY’S

Sainsbury’s has been gaining market share, enticing customers with its luxury food label Taste the Difference.

Like Tesco, Sainsbury’s has a clothing line popular with followers of fashion called Tu, and its loyalty scheme Nectar.

Richard Hunter, of Interactive Investor, describes the company’s cash flow as ‘prodigious’, allowing it to pay generous dividends. The current yield is 5 per cent. Investors are also set to benefit from a £200m share buyback.

But Sainsbury’s, which has forecast that profits for the year to March 2026 will be about £1billion, in line with the previous year, suffers by comparison with the bravura of Tesco.

There is also a view that its Argos division will always be a drag on Sainsbury’s performance.

Based on this assessment, hedge funds took short-selling bets against the shares in the spring. Since then, the shares have revived and are up by 20 per cent over the past three months. Yet the perception lingers that ‘non-food’ cannot flourish, which is why analysts rate shares a ‘hold’.

Confident: In the words of boss Stuart Machin, the cyber incident is a bump in the road rather than a road block

M&S

Shares in M&S are 13 per cent lower than at the start of the year, thanks to the Scattered Spider cyber-attack. It forced online sales to be paused and left shelves empty, and will swipe £300m from operating profits.

Before the disruption filled, the focus was on the ascent of the food division. M&S was Britain’s fastest growing supermarket, although the loss from the joint venture with online player Ocado remained a problem.

The project to persuade more families to make M&S their weekly shop destination is the first manifestation of the determination to reconfigure the business.

In the words of boss Machin, the cyber incident is a bump in the road rather than a road block.

In October 2022, I put money on the M&S revival when the shares stood at 112p. I will use the drop in the price to buy more. For the moment, analysts are more wary, considering the shares a ‘hold’.

Investors can follow this recommendation, or rely on their own judgment. Prowl the aisles of all the supermarkets to check out who’s pulling ahead in the war to lure more families to their stores.

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