LONDON (Reuters) - Sainsbury's (L:SBRY) does not expect Dave Lewis, the new chief executive of Tesco (L:TSCO), to "go nuclear" on price cuts as part of a turnaround plan, according to analysts who met with the bosses of Britain's No. 3 grocer.
Last month Sainsbury's said it planned to cut costs, dividends and new store openings to fund 150 million pounds of additional price cuts, partly to counter the growing threat of German discounters Aldi and Lidl to traditional grocers.
Market leader Tesco, also reeling from a 263 million pounds accounting scandal, has been underperforming for longer and analysts expect Lewis to try to defend market leadership with more price reductions.
However, analysts at Bernstein Research said Sainsbury's CEO Mike Coupe and chief financial officer John Rogers told them at a meeting on Tuesday that they did not see price cuts by Tesco of 5 percent as a likely immediate scenario.
"This would only address one issue (price), but Tesco have issues on quality and service as well. Going so nuclear on price would mean heavy cost savings and no spare resources to improve on other aspects," the analysts said in a note published on Thursday that set out the Sainsbury's executives thinking.
The note said Lewis' initial move to add more staff hours to Tesco stores was adding more costs rather than cutting them out, though the analysts saw this as a temporary measure "to stop Christmas being a disaster."
Tesco declined to comment.
Last month Coupe told reporters Sainsbury's had the cash resources to deal with whatever scenarios it could envisage in the market place and stated: "We are very aware that there is somebody (Tesco) limbering-up in the changing rooms."
Tesco's Lewis said in October that investors should not expect the presentation of a single new over-arching strategy but rather a series of incremental improvements that would be felt over time.
The Bernstein analysts, led by Bruno Monteyne, a former senior Tesco supply chain executive, said the Sainsbury's executives conceded that if their analysis was flawed and Tesco did go nuclear on prices then "all bets are off" and consolidation in the industry would become likely.
Shares in Sainsbury's and Tesco, down 35 percent and 44 percent respectively so far this year, were both down 1 percent at 1216 GMT.
(Reporting by James Davey)