Shares in Morrisons slumped 8pc after the troubled company disclosed it would slash prices, in the wake of a £176m pre-tax loss for the year to February 2, reports The Telegraph.
Having fallen behind its rivals, the company said it would invest £1bn on price cutting and product improvement over the next three years, an announcement that knocked shares in its listed competitors: J Sainsbury tumbled 6.6pc, and Tesco slid 3.1pc.
The three supermarkets were the heaviest fallers in the FTSE 100, and the declines knocked some £1.3bn off their combined market values.
Darren Shirley, analyst at broker Shore Capital, said other supermarket companies were unlikely to be complacent and that there would be pricing “contagion”.
“Price investment with a refocused promotional programme can only be considered a worry for the industry and investors therein,” the analyst said.
“Other supermarkets cannot stand idly by and let a competitor steal a march and so for Asda and Tesco in particular there may be concern as to what Morrison’s is doing.
“The scope for ‘contagion’ on the pricing front is high and, therefore, gross margin pressure can be expected to build.”
Analysts at Jefferies said Morrisons was “getting the bazooka out”.
Fierce pricing competition with dicounters Aldi and Lidl has hit the ‘Big Four’ mid-market grocers, with Tesco’s market share in the UK has fallen to its lowest level in almost a decade, according to data from Kantar Worldpanel.
Dalton Philips, chief executive of Morrisons, who has been under pressure, said: “The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail.
“We are significantly reducing our cost base and will invest £1bn into our proposition over the next three years, to improve our value even further and to defend and strengthen our competitive position.
“Customers will see this in our stores as well as in our fast growing online and convenience offers. At the same time we will exit non-core activities, significantly reduce our capital expenditure and deliver improved operating cashflow and return on capital employed.”
While focusing on cutting prices and improving its food ranges, Morrisons will sell-off non-core assets, including online baby equipment retailer Kiddicare. Morrisons said Kiddicare’s performance has been “disappointing” and took a £163m writedown on the business.
Mr Philips added: “I’m confident that Morrisons will emerge from this period of necessary change as a more focused, more distinctive value leader and well positioned to compete sustainably in the new grocery landscape.”