[FMCG Weekly] UK Grocery Price War: Will Sainsbury’s Blink Next?

This week we begin with the intensifying UK supermarket price war, where Sainsbury’s and Tesco face strategic pressure from Asda’s bold pricing pivot. We then move to innovation in loyalty with Peroni Nastro Azzurro, a bold acquisition play from Müller in the functional dairy space, and a milestone celebration in the USA for Costco’s Kirkland Signature brand, now a case study in private label brilliance. Let’s explore how these developments fit into broader themes of pricing power, brand equity, and consumer trust.

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Let’s begin in the UK, where grocery giants are locked in what increasingly resembles a strategic chess match, with margins and market share on the line. Sainsbury’s is preparing to release its annual results, and all eyes are on whether it will follow Tesco in guiding for lower profits to preserve pricing power. The backdrop? Asda’s decision to relaunch the ‘Asda Price’ initiative—offering everyday prices 5% to 10% lower than rivals—is forcing incumbents to reconsider their financial priorities.

Asda’s chairman, Allan Leighton, made it clear last month that the retailer is willing to absorb a hit to profitability in order to win back shoppers lost to the likes of Tesco, Aldi, and Lidl. This is no idle threat—it's a call to arms. The market responded in kind: share prices of Tesco, Sainsbury’s, and M&S all took a beating.

In a swift counter, Tesco revised its profit guidance, forecasting an adjusted operating profit up to £500 million below prior analyst expectations. The move was both defensive and strategic, a recalibration to retain price leadership without sacrificing long-term viability. CEO Ken Murphy was measured but resolute, stating that Tesco’s posture was one of strength. “We’re capable of dealing with whatever comes our way,” he declared, underscoring Tesco’s confidence in its scale and operational efficiency.

Sainsbury’s, meanwhile, had previously guided a retail underlying operating profit of £1.03 billion for 2024/25, a healthy 7% increase from the prior year. Analysts were still penciling in further growth to around £1.08 billion for 2025/26—until Tesco’s bombshell. Now, Sainsbury’s faces a stark decision: hold the line or preemptively adjust expectations?

Analysts are divided. William Woods at Bernstein used a fitting analogy, comparing the retail landscape to a classic Western standoff. “Each retailer gently ratchets up the pressure, unholstering their gun, taking aim and waiting to see who, if anyone, starts shooting,” he said. While he does not anticipate an irrational price war, the psychological impact of Asda’s posture is undeniable.

There’s another layer of complexity for Sainsbury’s. Approximately a quarter of its sales come from non-food categories, significantly higher than Tesco’s 7%. That makes it more vulnerable to macroeconomic headwinds—such as rising US tariffs on imports, which could disrupt global supply chains and dampen discretionary spending. In other words, Sainsbury’s has less room to maneuver.

Switching gears, let’s talk premium beer. Peroni Nastro Azzurro has just launched Club Peroni, a loyalty programme designed to increase off-trade sales while seamlessly integrating with retailers’ own loyalty systems. This is no standard cashback scheme. Instead, it’s a digitally-enabled engagement platform where consumers scan a QR code, submit a receipt, and earn points toward a curated selection of rewards—everything from event tickets to branded merchandise and free drinks.

Rob Hobart, Marketing Director at Asahi UK, explained that Club Peroni doesn’t burden retailers with additional logistics. “The scheme works behind the scenes without adding extra steps for consumers or our trade partners,” he noted. This low-friction model is key—it respects the shopper journey while arming retailers with actionable, data-driven insights.

This move is part of a broader trend: premium alcohol brands are recognising the importance of loyalty in retaining younger, more experience-driven consumers. It’s not just about taste—it’s about brand identity, community, and reward. In a highly fragmented category, loyalty schemes can tip the scales by converting casual trial into sustained preference.

Now, let’s pivot to dairy—and one of the boldest strategic acquisitions in the UK food sector this year. Müller has acquired Biotiful Gut Health, a kefir-based brand that grew more than 80% year-on-year to hit €41 million in revenue. The acquisition gives Müller a firm foothold in the booming functional food category, which aligns with rising consumer interest in gut health, immunity, and wellness.

Founded in 2012, Biotiful has managed to crack into the top 10 British yoghurt producers through relentless product innovation and savvy marketing. Founder Natasha Bowes will stay on in an advisory role during the transition, while the company will operate independently under Müller’s leadership.

For Müller, this is more than a portfolio expansion—it’s a statement of intent. The company has long held strong positions in milk, yogurt, and desserts, but functional dairy represents a high-growth, high-margin adjacency. With this acquisition, Müller signals that it wants to lead in both scale and innovation.

The move is part of a broader realignment of the Theo Müller Group’s dairy brands. Under the leadership of Manfred Weiß and a newly expanded management team, the company is refocusing on its brand core—prioritising volume generators over niche trends and increasing prices across Müller, Weihenstephan, and Landliebe.

Landliebe, in particular, is undergoing a major reboot. Recently absorbed operationally by Müller, the brand is being repositioned with a new pricing strategy, marketing push, and portfolio refresh—including an entry into branded cheese. With the Cologne site already marked for closure and decisions pending on Heilbronn, Müller is making tough calls to streamline its footprint and restore profitability.

Meanwhile, Weihenstephan continues to outperform the shrinking dairy category, growing by 32% in drinking milk and butter. Capacities for UHT milk have been ramped up by 25%, underscoring the company’s commitment to staple categories that offer dependable volume.

As Weiß put it in a recent interview, disputes with retailers are counterproductive. “We will find solutions,” he said, pointing to a more collaborative, pragmatic approach to trade relationships—a lesson that some competitors might want to revisit.

And finally, let’s celebrate an iconic brand turning 30: Kirkland Signature, Costco’s own-label range that now drives a third of its $254.5 billion annual sales. Launched in 1995, Kirkland was a radical departure from retail norms. Most grocers split their store brands across various sub-labels, often treating them as price fighters with little emphasis on quality or brand consistency.

Costco flipped that playbook. By unifying all private label under the Kirkland Signature name and standing behind its quality, the warehouse retailer built a brand within a brand. According to co-founder Jim Sinegal, the goal was to tell a story—one of low prices and high trust. “It kind of simplifies things,” he said. “And it certainly has told a story to our customers.”

The success of Kirkland lies in its dual function: it reinforces Costco’s price-value proposition while also serving as a strategic lever in negotiations with big-brand suppliers. In some categories, Kirkland matches or even exceeds the quality of national brands. That dynamic allows Costco to maintain price leadership without sacrificing margin.

Beyond economics, Kirkland is a masterclass in customer loyalty. Members trust the brand. They look for it. In many cases, they prefer it. Whether it’s toilet paper, organic olive oil, or roasted almonds, Kirkland delivers consistency, which in today’s fractured brand landscape, is a rare commodity.

Accuris is producing a special on the success of Kirkland Signature. Go to our website and download our free 12-page special about this unique private label brand. Available from April 20th.

That is it for this week’s episode of FMCG Weekly! We have more news and insights every week. Make sure to subscribe and stay up to date with the latest in consumer goods and retail. And remember: for Independent and non-conformist advise on revenue management, go to acuris.com. See you next week!