Page last updated at 12:26 GMT, Friday, 27 June 2008 13:26 UK

Supermarkets to battle on prices

Bread
Inflation figures revealed the rising cost of basic staples such as bread

Supermarket giants have announced price promotions to outflank discount stores, which have risen in popularity.

Shoppers feeling the pinch have moved to no-frills stores, experts say, with Aldi and Lidl seeing strong growth.

Now Asda is selling 10 staple items such as bread and eggs for 50p over the weekend, and Tesco says it will cut the cost of 3,000 items on Monday.

Rising food prices were the biggest contributing factor to a big lift in consumer inflation in May.

Price cuts

Asda, owned by the US giant Wal-Mart, is advertising a promotion of basics, including sausages and bananas for 50p, from Friday to Sunday.

There is pressure on the major supermarket groups to compete
Henk Potts
Barclays Wealth

"Times are getting tough and people are feeling the pinch so we have reduced the price of these 10 staple items over the weekend," said an Asda spokesman.

"It is going back to the basics, like bread, eggs and butter and fruit and veg as well."

Meanwhile, Tesco, the UK's biggest retailer, says it will cut prices on thousands of items in the coming days by up to 50%.

Rival Sainsbury's has responded with temporary price cuts on summer groceries such as strawberries.

"Whether these are headline-grabbing gimmicks or a longer-term trend, it is just too early to tell. We would urge retailers to keep offering healthier options at affordable prices," said a spokesman for the National Consumer Council.

"We also hope that concentrating on prices will not distract supermarkets from encouraging shoppers to make greener choices when filling their trolleys."

Threat to business

Analyst Henk Potts, of Barclays Wealth, told BBC Radio 5 Live's Breakfast programme that the supermarkets were responding to a shift by shoppers from high-end to low-end stores.

Front of Asda store
Asda is promoting price cuts for one weekend only

"In a competitive environment, they have to be aggressive in terms of pricing," he said.

"If consumers have got less money in their pockets, they spend more money in discount supermarket groups. There is pressure on the major supermarket groups to compete with that."

In the three months to the middle of June, Aldi showed a year-on-year rise in sales of 20%. Lidl went up nearly 13% and Farm Foods 13%.

However, they still only have a tiny market share. For example, Aldi has a 2.6% market share compared with Tesco, which had a 31% market share and a 5% growth in sales during the same period.

So-called supermarket "price wars" tend to focus on a small percentage of overall sales, with the supermarkets themselves taking a temporary hit, or squeezing suppliers.

The grocery market in general has grown strongly, helped by food price inflation.

When the Consumer Prices Index (CPI) rose by 3.3% in May, up from 3% in April, the Office of National Statistics said milk, cheese and eggs had shot up in price by nearly 17% over the year.


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