Tesco and Asda in supermarket price-cutting war
Saturday, 16 June 2007
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Tesco ignited a fresh supermarket price war yesterday as the retail behemoth said it would slash the price of more than 3,000 products by as much as a third at a cost of £270m.
The move drew an immediate response from the Wal-Mart-owned Asda, which said it was embarking on a £250m price-cutting spree that would affect 10,000 products across food, its George clothing line and general merchandise.
Both companies also indulged in tit-for-tat name calling, with Asda accusing rivals of "conning" their customers while Tesco said its cuts were "genuine, unlike some of our competitors' price claims".
However, despite the claim and counter claim, the moves are likely to be welcomed by the Bank of England's Monetary Policy Committee, if the numbers stack up and the cuts feed through into the wider economy.
The MPC has already raised interest rates twice this year and four times since last summer. It has also sounded alarm about food price inflation taking off in recent months.
In April, a report by Royal Bank of Scotland said the price of groceries was rising nearly three times as fast in Britain as in the rest of Europe, with UK consumers paying 5.6 per cent more to fill their trolleys than a year ago, compared with a rise of just 1.9 per cent in the eurozone.
Some economic forecasters are predicting that another rate rise is all but inevitable as the MPC tries to control Britain's spiralling inflation rate.
Both companies claimed they were acting "in the interests of consumers", citing figures showing customers were finding it tough after the rate rises. But it is significant that last night's announcement came before Tesco's first-quarter trading update on Tuesday, when analysts are predicting that it will report a slowing rate of same-store sales growth.
Tesco is facing tougher competition from the revived J Sainsbury and William Morrison as well as Asda. Citigroup noted yesterday that Tesco's trading "seems to have slowed" and that the tougher competition from rivals "seems to have rattled Tesco".
The launch of a renewed supermarket price war would help to divert attention from the figures as Tesco seeks to claw back ground from its rivals.
