Tesco Shares (TSCO) Preferred Over Sainsbury (SBRY) As Analyst Initiates UK Retail Coverage

Deutsche Bank has initiated coverage on two of the UK's largest supermarket chains, Tesco and J Sainsbury, providing a clear perspective on their relative investment appeal. The firm assigned a ‘Buy' rating to Tesco (LON:TSCO) with a price target of 470p, while J Sainsbury (LON:SBRY) received a ‘Hold' rating and a 310p price target.

Tesco's shares are currently trading around 422.60p, while Sainsbury's is trading around 303p. The analyst's price target suggests a potential upside for Tesco, while indicating limited near-term growth for Sainsbury.

This assessment reflects Deutsche Bank’s constructive view on the overall UK food retail sector, but underscores a preference for Tesco's superior operational efficiency and market positioning.

Deutsche Bank analyst Benjamin Yokyong-Zoega highlighted Tesco's strengths, stating that its “online growth and powerful Clubcard flywheel are also competitive advantages with long-term monetisation opportunity.” This endorsement underscores Tesco's ability to leverage its loyalty program and online presence to drive sales and customer retention.

Tesco's stock has demonstrated robust performance, rising 27% over the past 12 months, significantly outpacing Sainsbury and the FTSE 100 average. In contrast, Sainsbury's has increased by 9.2% whilst the Footsie has added 10.45%.but lagging behind Tesco's returns.

Sainsbury's, while showing steady growth, faces challenges that temper Deutsche Bank's enthusiasm.

Yokyong-Zoega pointed to Sainsbury's lower margins and exposure to Argos, the retailer it owns, as potential vulnerabilities. The analyst noted that these factors could limit Sainsbury's ability to compete effectively in an increasingly competitive market.

The UK grocery sector is currently navigating a complex landscape of competitive pressures and fluctuating inflation rates. In March 2025, Asda initiated a price reduction strategy to regain market share, resulting in a £3.5 billion decline in the market value of competitors like Tesco and Sainsbury.

Grocery price inflation reached 4.7% in June 2025, the highest since February 2024, driven by rising costs in products like chocolate, butter, and meat. These inflationary pressures, combined with intensified competition, have influenced stock price movements and strategic decisions within the sector.