Tesco's Market Share Gains and Strategic Pricing Power in a Stagnant Retail Sector

The UK grocery sector in 2025 remains a battleground of pricing wars and operational agility, with Tesco PLC emerging as a standout performer. While discounters like Lidl and Aldi continue to erode market share, Tesco's disciplined pricing strategy, operational efficiency, and shareholder-friendly initiatives position it as a defensive play in an otherwise stagnant retail environment. This analysis examines how Tesco's strategic positioning-compared to rivals like Asda-ensures sustainable growth and long-term value creation.

Market Share Gains: A Tale of Two Giants

Tesco's dominance in the UK grocery market has solidified in 2025, with its market share rising to 29.1% in Q3 2025, up 0.5% year-on-year. In contrast, Asda's market share has declined to 11.5%, a drop of over 1 percentage point since 2024. This divergence reflects Tesco's ability to balance competitive pricing with profitability, while Asda's aggressive price cuts-such as its 22% average reduction on 1,000 products-have yet to translate into meaningful market share recovery. Meanwhile, Lidl's gains (now at 7.4% market share) underscore the sector's shifting dynamics, but Tesco's scale and brand loyalty remain unmatched.

Pricing Power: EDLP vs. Tactical Discounts

Tesco's Everyday Low Prices (EDLP) strategy, which covers over 3,000 branded lines, has been a cornerstone of its resilience. While rivals undercut a third of these products, Tesco's approach avoids the volatility of promotional pricing, ensuring consistent margins and customer trust. This contrasts with Asda's reliance on tactical discounts, which, though effective in attracting price-sensitive shoppers, have not reversed its declining sales-down 3.2% in the 12 weeks to October 5, 2025. Analysts note that a full-scale price war remains unlikely due to rising operational costs, but Tesco's EDLP model provides a durable edge.

Financial Resilience: EBITDA and Buybacks

Tesco's financial metrics reinforce its defensive qualities. Despite a projected EBITDA margin decline to 5.1% in FY26 (from 5.6% in FY25), the company has maintained profitability through cost discipline and operational efficiency. Its £1.45 billion share buyback program, with an average cancellation price of 437.38 pence per share, has further bolstered shareholder value. By comparison, Asda's EBITDA margin is forecast to fall to 3.3% in 2025, reflecting weaker gross margins and ongoing IT integration costs. While Asda has no active buyback program, Tesco's capital return strategy signals confidence in its long-term resilience.

Operational Efficiency: Driving Growth

Tesco's Q3 2025 results highlight its operational agility. Group like-for-like sales rose 2.9%, driven by a 6.6% increase in fresh food sales and a 47% surge in online delivery via its Whoosh service. The company's expansion of Aldi Price Match on 650 lines and personalized Clubcard promotions has also strengthened customer retention. In contrast, Asda's Q2 2025 like-for-like sales fell 0.2%, though it showed sequential improvement from Q1's 3.1% decline. Tesco's ability to scale digital and fresh food channels-while Asda grapples with IT disruptions- underscores its operational superiority.

Shareholder Value and Strategic Positioning

Tesco's strategic focus on value creation extends beyond pricing. Its £1.45 billion buyback program, combined with a raised guidance for group-adjusted operating profit (now expected to reach £3.1 billion), signals strong capital allocation discipline. Asda, meanwhile, has prioritized investments in store upgrades and colleague pay, but these initiatives have yet to offset its market share losses. In a sector where margin pressures are acute, Tesco's balance of cost control and reinvestment positions it as a more reliable long-term play.

Conclusion: A Defensive Champion in a Challenging Sector

The UK grocery market's competitive landscape in 2025 is defined by margin compression and shifting consumer priorities. Yet, Tesco's disciplined pricing, operational efficiency, and shareholder-friendly policies have enabled it to outperform rivals like Asda. While Asda's aggressive discounts and store investments are commendable, they lack the structural advantages of Tesco's EDLP model and buyback-driven capital returns. For investors seeking resilience in a stagnant sector, Tesco's strategic positioning offers a compelling case for long-term value creation.