Tesco and Sainsbury's are benefiting from a maturing discounter threat, UBS argues, after analysis of Lidl's latest UK accounts showed the German chain prioritising profit over aggressive expansion.
UBS retains buy ratings on both listed grocers, with target prices of 565p for Tesco and 395p for Sainsbury's, saying the broader competitive backdrop continues to move in their favour.
The broker's view is underpinned by Lidl's annual report for the year to February 2026, which showed the privately held chain opening 40 net new stores, below its historic average of around 50 per year.
Lidl's UK revenues rose 10.8% to £12.998 billion, with 1,016 stores trading by the period end.
Adjusted earnings before interest and tax margin rose 18 basis points to 2.8%, surpassing rival Aldi's margin of 2.5% for the first time in seven years.
UBS notes the improvement came despite a 52 basis point decline in gross margin, offset by tighter cost control, with the personnel cost to sales ratio edging down from 8.7% to 8.6%.
Sales growth was driven by Lidl's premium deluxe range, up 12% year on year, and non-food lines, up 19%.
UBS says its geospatial data shows the hard discounters are now cannibalising each other at a rate of around 85%, with competitive intensity against the Big Four holding steady rather than intensifying.
Aldi's separate accounts, filed to December 2025, showed its UK margin fell from 2.7% to 2.5%, while the German group paid a £250 million dividend to its parent for the second consecutive year.
UBS analyst Sreedhar Mahamkali argues both hard discounters are now prioritising cash generation over market share, which should keep pricing behaviour in the sector rational.
