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Friday, August 20, 1999 Published at 19:59 GMT 20:59 UK

Business: The Company File

More competition in store

In the aisle at Asda: will other supermarket chains split up?

It's nearly enough to cause trolley rage. Just when supermarket competition is at its height, along comes another rival to give bosses a fresh headache.

Earlier this summer, Safeway announced the creation of 3,500 jobs and Asda expanded by merging with retail giant Kingfisher.

Meanwhile, Sainsbury revealed dismal profits but Tesco announced soaring sales and expansion plans. Sainsbury hastily set about launching a new brand image in an effort to reclaim the top spot.

[ image: Wal-Mart is America's biggest store]
Wal-Mart is America's biggest store
At the same time, price wars were breaking out on a regular basis.

Never before had things been so fierce.

So when, two months ago, American giant Wal-Mart bought up Asda, it added to the pressure on the UK's big four.

The assumption was that with the financial muscle of the world's biggest retailer behind it, Asda could threaten established names by launching cut-throat competition.

So what plans has it drawn up to meet the challenge?

Asda's onslaught has already begun, with all-round price cuts and the scrapping of its loyalty card to focus on costs.

The kneejerk response of some rivals is to launch yet more price cuts, since Wal-Mart is known for its "pile-it-high, sell-it-cheap" philosophy.

No panic

But UK stores are not convinced they are staring into oblivion.

Just because a cut-price store arrives here, they argue, does not mean shoppers will be converted.

[ image: Sainsbury says its customers are still loyal]
Sainsbury says its customers are still loyal
Customers might be fickle, but they also have loyalties for other reasons, such as convenience, service or supplies of favourite foods.

There is also faith in UK shoppers' ethical principles - questions have been raised in the US about the integrity of some of Wal-Mart's suppliers abroad and their environmental track record.

And many people still support the 'Buy British' principle. A Sainsbury's spokeswoman said: "Until they're here in force, who's to say what buying policy they will adopt?"

Many store chiefs are quite relaxed about the Asda-Wal-Mart threat.

Pip Wood of Sainsbury said: "We're keeping our eyes open, but the sector is already increasingly competitive and intense so we're continuing to react as we always have.

"We're not blasé but neither are we putting in great teams to react."

Other selling points

She said other companies who have tried discounting in the UK have not been very successful: "It's by no means a foregone conclusion. I don't think it will be easy to apply the American formula here."

Sainsbury, aware it has never been the cheapest supermarket, is not aiming to win the price war, instead stressing what it sees as other strong selling points, such as its exotic and organic foods.

[ image: Some shoppers want greater choice of goods]
Some shoppers want greater choice of goods
It is also widening the benefits of its loyalty card and focusing on store revamps. One trial will see trolleys with cup holders - for people to drink coffee as they shop.

Nor is Safeway planning any innovations as a result of the Wal-Mart threat.

A spokeswoman said: "I'm not aware of any specific plans but if there were any, we couldn't discuss details.

"The market is getting fiercer anyway and we always try to keep ahead of the game.

"What gives us an edge is IT. We have self-scanning in several stores and we're introducing 24-hour pre-ordering.

"Wal-Mart is likely to bring in new things, just as our competitors do anyway."

Greater convenience

A survey by analysts Verdict backs up Sainsbury's view of the price war. It found shoppers are more concerned with ranges on offer at a store, followed by convenience, with price coming only third.

The convenience issue is gaining importance. This year has seen supermarkets moving back into town centres. Not long ago they were rushing to build out-of-town superstores, to cries of "it will tear the heart out of the town".

Tesco, who led the way in the High Street return, already have more than 40 Metros.

Sainsbury is planning 1,000 Local stores. And, together with BP Amoco, Safeway plans 145 petrol forecourt shops over the coming years.

[ image: It's business as usual at Tesco]
It's business as usual at Tesco
Smaller chains such as Co-op, Spar and Budgens, and the independent retailers are again crying foul.

And analysts warn that big supermarkets might buy up smaller rivals in the race to dominate communities.

Indeed, there is also wider speculation that the arrival of an aggressive cost-cutter such as Wal-Mart will be bad for the public long-term, because by forcing out smaller players, it leaves the way open for the big guys to hike prices back up.

But Asda spokesman Nick Agarwal said: "We're going to do what we've always done - deliver the lowest prices so shoppers come to us in increasing numbers. They'll see evolution, not revolution."

He denied suggestions Wal-Mart used unethical suppliers. Both Asda and Wal-Mart had a zero-tolerance policy of abuses by suppliers and adhered to principles as rigorous as any other supermarket, he said.

The company plans five new stores in the south by Christmas, muscling in on the "duopoly" of Tesco and Sainsbury.

'Good for us'

Tesco, for its part, believes the extra competition will sharpen it up.

Far from scrapping the loyalty card Tesco is expanding the benefits - not unlike Sainsbury's scheme.

Chief executive Terry Leahy has said: "I'm certain that Tesco will thrive on the new competition. The tougher it is the better we become, so we hope they'll offer us good competition.

"Wal-Mart is certainly a strong business in the US. It is less clear, frankly, how successful it is overseas."

Spokesman Andrew Coker added: "It's business as usual. We're not complacent but if you've got a competitor you have to fight hard for your customers. It will make us a better company and that's better for customers."

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