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Monday, 2 October, 2000, 13:11 GMT 14:11 UK
Tesco restarts price war
Exterior of a Tesco store
Price cuts come as the government prepares to have its say on supermarkets
The UK's largest grocer, Tesco, announced fresh price cuts on Monday, restarting a price war with its rivals and pre-emting the government's response to an inquiry into supermarket profits.

The company said prices of a wide range of products would be reduced at a cost of 55m. Prices of some goods would be cut by up to 20%.

The move comes as the Department of Trade & Industry prepares to publish its response to the Competition Commission's long-awaited report into the UK's leading supermarkets.

According to the Observer, which saw a copy of the report, the commission had rejected the "Rip-Off Britain" tag coined by the government, concluding that the market was "broadly competitive".

Analysts said the supermarkets - which have spent up to 20m defending themselves since the inquiry's launch in 1998 - would be happy that the report was not more critical.

Prices "not excessive"

The commission was reported to have said that supermarkets' profits "could not be considered excessive" and that "overall, excessive prices are not being charged".

Price differences between the UK and other parts of Europe and the US were because of higher land and building costs and the strength of sterling rather than any anti-competitive behaviour, the commission was reported to have said.

In real terms, food prices decreased 9.4% between 1989 and 1998, it said.

In areas where the report did criticise the supermarkets, it recommended that no action be taken.

It said the practice of selling items below cost was against the public interest because it damaged small grocers. It also criticised the policy of charging different prices for the same goods in different parts of the country according to the amount of local competition.

In its strongest comments, the report said supermarkets should be forced to gain the approval of the Office of Fair Trading before building new superstores, so that concerns about local monopolies would be satisfied.

Marketing ploy

Tesco said its new cuts would lower the price of a typical shopping basket by 11% for a pensioner, 9% for a young family and 12% for a student.

These would add to price reductions totalling 411m that had already been made since February.

Some analysts said the price cuts were more of a marketing ploy than a genuine effort to reduce prices across the board.

They would not impinge on the company's profitability as they were targeted at everyday items rather than Tesco's profitable 'finest' range of premium goods.

But Tesco marketing director Tim Mason told BBC Radio 4's Today programme this amounted to being "damned if we do, damned if we don't".

Radical action unnecessary

Analysts said the company will hope that the new round of cuts, together with similar moves introduced by competitors Asda Wal-Mart and Safeway, would persuade the government that radical action on supermarket prices was unnecessary.

Tesco's move was "very convenient timing," retail market consultant Robert Clark told the BBC.

But a Tesco spokesman denied the price cuts were linked to the Competition Commission's report.

"We have launched price cuts every autumn since 1996," he said.

Last month, Tesco reported record half-year figures, prompting more calls from consumer groups for action on supermarket profitability.

Tesco Marketing Director, Tim Mason
"The timing is important"
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