Iceland hit by price war

Related tags Asda Morrisons

Price cutting by the major UK retail chains has taken its toll on
Iceland's burgeoning recovery in the first quarter - and changes at
Safeway and J Sainsbury are likely to keep the pressure on prices
well into the second half.

First quarter like-for-like sales at the Big Food Group, which owns both Iceland and the Booker cash & carry chain, fell by 0.5 per cent in the 13 weeks to 2 July - still better than Marks & Spencer's 1.5 per cent drop in like-for-like sales also reported yesterday, but down on BFG's 0.2 per cent drop in the first quarter of last year, and well below the 2.2 per cent gain registered in the second quarter of 2003.

Bill Grimsey, BFG chief executive, said he had never seen the UK food retail market as competitive, predicting that grocery prices would continue to drop this year as Morrisons brought down prices at its newly acquired Safeway stores and J Sainsbury's new management team got to grips with its perennially high price positioning.

The price deflation, and rising interest costs which have impacted the group as a result of its high debt levels, has effectively taken the wind out the sails of recovery at BFG, which has been forced to revamp its old-fashioned frozen food-focused Iceland stores as larger groups have entered the high street convenience retail arena.

The refit has inevitably affected sales at the division, despite good performances from the new-look stores, and this poor sales continued into the quarter, with Iceland turnover dropping 1.7 per cent.

Booker saw its turnover drop 1.1 per cent mainly due to a downturn in catering sales affected by the poor weather, the Euro 2004 football tournament (which meant more people stayed at home rather than go out to eat) and a downturn in tourism.

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