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U.K. price war heats up
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October 1, 1999: 7:06 a.m. ET
Supermarket chains unveil large price cuts as Wal-Mart's influence grows
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LONDON (CNNfn) - The British supermarket price war took on a new intensity Friday with the top two chains exchanging salvos as competition heats up following U.S. giant Wal-Mart's acquisition of the country's No. 3 supermarket operator, Asda, in June.
J. Sainsbury, the U.K.'s second largest supermarket chain, unveiled a commitment Friday to match the lowest prices on over 1,500 of its most popular goods.
"We promise that these prices will be the best you can find in any major supermarket in your area. If we accidentally miss one (and these things can happen) we will refund twice the difference," said Sainsbury chief executive Dino Adriano in a statement.
Tesco, the U.K.'s top food retailer, attempted to steal the show Friday by unveiling details of its range of price reductions, first announced last week. The supermarket group said it would lower prices by an average of 10 percent from Monday. "The Tesco price cuts we are unveiling today will rock U.K. shopping baskets in a way we have never seen before . . . it's a retail revolution," said Tesco marketing director Tim Mason in a statement.
The latest moves follow a promise from Asda last week to cut prices over the next 18 months to match those of new parent Wal-Mart (WMT). The group said this would involve reducing prices on 10,000 products by between 5 and 10 percent. Asda already claims to be up to 10 percent cheaper than its two larger rivals.
Analysts also point to an ongoing investigation by U.K. competition authorities of all supermarket groups, looking at whether they abuse their dominant position to make excessive profits.
"This is a combination of the Wal-Mart and the "rip-off Britain" effect," one London-based retail analyst, who asked not to be named, told CNNfn.com.
The analyst calculated the move by Sainsbury would cost the company 40 million pounds ($66 million) per year at the bottom line, money it will struggle to recoup from higher revenues.
"I don't think we will get like-for-like sales growth to make up for the price cuts. So I think we will start seeing analysts downgrade [their profit forecasts]," the analyst said.
Tesco said its gross spend on the price cuts would amount to 250 million pounds per year.
Investors in London gave the new pricing initiatives a chilly welcome, with both Sainsbury and Tesco stock sliding: Sainsbury fell almost 3 percent and Tesco dipped 2 percent.
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Tesco
J Sainsbury
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