Price war "just the beginning" for ambitious Asda

By Anita Awbi

- Last updated on GMT

Related tags Asda Supermarket Marketing

Britain's second largest supermarket Asda has announced a £102
million investment to lower prices on key products so far this
year, turning up the heat on rival chains.

The US-owned retailer intends to plough money into price cuts as it gears up to claw back business from Tesco, which currently holds a 30.5 per cent market share.

Tony Page, executive director at Asda said: "We're putting our money firmly where our mouth is with this multi-million investment in prices. Shoppers should expect to see even more aggressive cuts throughout the year - this is just the beginning."

The retailer's strategy seems to be paying off as independent pricing surveys continue to show Asda in pole position amongst the supermarkets.

Goldman Sach's latest pricing study from 12 January confirms Asda is already "turning up the heat on pricing in 2006" by being the most aggressive price cutter so far.

Fierce price wars between the UK's leading supermarkets already squeezed grocery prices in 2005, saving consumers £3 billion in shopping bills according to new research by UK-based data analyst Verdict.

It is rumoured that Tesco plans to retaliate with similar price cuts on key items in the near future, and reports in The Grocer reveal the company may have booked a massive chunk of advertising space for the venture.

The retailer's third quarter policy of deflating prices by 1.5 per cent is also set to remain in place well into the New Year as price remains a key battleground.

Intense pricing competition, originally initiated by market-leaders Tesco and Asda in the late 1990s, produced two consecutive years of deflated grocery prices - and the trend is set to continue this year Verdict predicts.

Although the price squeeze is pressuring suppliers, customers look set to benefit by more than £3bn by the end of 2006.

"So far the lower prices have saved the UK consumer more than £1bn in 2005 compared with 2003, and the annual savings will increase to £1.7bn in 2006, with forecast food and grocery deflation of 0.6 per cent - meaning food and grocery will cost 2 per cent less than in 2003,"​ Verdict senior analyst Gavin Rothwell explained last month.

Asda currently holds second position, with a market share of 16.7 per cent, but third place Sainsburys is catching up, sitting on a 16.2 per cent share.

Sainsburys is expected to join the price war, but in a statement last month the retailer's chief executive Justin King said: "We have made great progress in the relativity of our position. Why would we give that up? We won't.

"Our strategy is about being price competitive, not a price leader."

Sainsburys challenge for the top spot has been helped recently by revelations that Asda may fall from its position as Britain's second largest retailer because of stagnant sales over the last 12 months.

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