Price wars hope as Tesco cuts dividend

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Tesco’s response to its trading turmoil is likely to have major repercussions for its rivals and lead to cheaper shopping bills for households.

With a market share of just under 29 per cent, the prospect of Tesco bringing its full weight to bear in a new phase of a supermarket price war would be significant.

Analysts estimate that a planned dividend cut will save the company as much as £900m a year which, added to other cost savings, could give it an additional £1.3bn for a war chest to fight on price cuts.

Chairman Sir Richard Broadbent signalled the company’s intentions when he said the dividend cut enabled Tesco to retain “strategic optionality”.

The supermarket added that new chief executive Dave Lewis will start reviewing all aspects of the group from Monday, with a chief priority being an improvement in its competitive position.

Earlier this week, figures from Kantar Worldpanel showed that Tesco sales were four per cent lower in the 12 weeks to August 17 as its market share slid to 28.8 per cent from 30.2 per cent a year earlier.

Killik & Co partner Paul Kavanagh expects Tesco “to come back to the table with further price cuts and to keep this industry under a lot of pricing pressure over the next year or two”.