Tesco launches new price war

(GETTY IMAGES)

The UK's biggest supermarket, Tesco, started its price war today after cutting the cost of 3,000 products as part of a £500 million campaign.

Some 14,000 staff across the UK changed nearly three million labels over the weekend on items such as milk, bread, and fruit and vegetables.

Tesco, which has lost market share in recent weeks as cash-strapped consumers shop around for the best deals, will cover the price cuts by slashing the number of multi-buy promotions and scrapping its double Clubcard points reward offer, meaning the scheme will revert to one point for every pound spent.

The price offensive is expected to trigger an aggressive response from Asda and Sainsbury's, which both accused the market leader of using spin tactics, as well as from fourth-place rival Morrisons.

Richard Brasher, Tesco's UK chief executive, said: "We're giving customers a more straightforward shop - reducing the number of promotions and putting the emphasis on clear and reliable savings that everyone can benefit from."

A typical price cut would include loose carrots, which will be reduced by 14p per kilo, which Mr Brasher said would save 747,000 households around £5.4 million a year.

Elsewhere, a medium sliced white loaf will be cut from 69p to 55p, a pack of Braeburn apples will be down to £1.40 from £1.75, a bag of maris piper potatoes will drop to £1.39 from £1.74 and an Italian pepperoni pizza will slip from £3.59 to £2.85.

Tesco said it will also increase the value customers can get from Clubcard vouchers by improving the exchange rates on the most popular rewards from three times to four times the value.

The most popular rewards include deals with Pizza Express, Cafe Rouge and Strada.

Asda upped the stakes in the supermarket pricing war this year with a scheme that sees it guarantee to be 10% cheaper than its rivals, while Ocado and Waitrose have matched their prices with Tesco's. Sainsbury's is also trialling a price-matching scheme in Northern Ireland.

Asda, the country's second biggest supermarket chain, said: "No amount of spin can change the fact our price guarantee ended price wars. No ifs, no buts, no fine print - 10% better value than our rivals on a comparable grocery shop or a voucher to make it so.

"Others can huff and puff as much as they like - shoppers want savings not spin, pounds in their pockets, not points on plastic."

Sainsbury's came out fighting as well following Tesco's announcement, accusing its larger rival of misleading customers.

A Sainsbury's spokesman said: "This is classic smoke and mirrors from Tesco, giving with one hand and taking with the other. Removing double Clubcard points will save Tesco £350 million.

"It is no surprise to us that Sainsbury's price-match policy, together with a stronger own brand offer, has forced Tesco to take this kind of action."

Tesco's market share slipped to 30.4% from 30.8% in the three months to September 4, according to retail analyst Kantar, while Sainsbury's and Morrisons saw slight gains.

The cuts come as households are struggling with the biggest squeeze on income since the 1920s, driven by high inflation and muted wage growth.

Mr Brasher said there would be some negotiation with suppliers over price cuts, but he would expect most to welcome the move as it will boost volume. He said the £500 million cost of the drive was the biggest he had seen in 25 years of working in retail.

PA