Tesco set to trigger new price war

The UK's biggest supermarket, Tesco, threw down the gauntlet to its rivals today as it unveiled a £500 million price-cutting campaign.

UK chief executive Richard Brasher said it would reduce the prices of 3,000 everyday products - such as milk, bread and fruit and vegetables - in a move which is expected to trigger an aggressive response from peers Asda, Sainsbury's and Morrisons.

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.

Mr Brasher, who took up the top UK post in March, 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."

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.

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.

He added that suppliers would be brought to the table 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.

He said customers would not stand for volatile price changes and added: "My intention is to reduce prices and keep them in place."

Tesco's market share slipped to 30.4% from 30.8% in the three months to September 4, according to retail analysts 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.

Asda has 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 reacted to Tesco's announcement with a strongly-worded response.

The country's second biggest supermarket 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 in having to take this kind of action."

PA