Asda steps up battle with price cuts

Asda, the country's No. 2 grocer, is cutting prices on 3,600 products by an average of 13 percent, intensifying the battle between the big supermarket groups at a time when lower food price inflation is hitting sales growth.

Asda, owned by the world's biggest retailer, U.S. group Wal-Mart Stores Inc, said on Tuesday the cuts covered one in five products in its stores, including potatoes, carrots, bananas, milk, nappies, rice, bread and cheese, and represented its biggest and broadest reductions in over a decade.

The cuts would more than offset an increase in VAT sales tax applicable to some non-food products on January 1 and the vast majority would last for a minimum of six to 12 weeks, it said.

The move appears to ratchet up a price war between supermarket groups, although it is reminiscent of similar campaigns in previous years which have been funded mainly by cost cutting and have not undermined industry profit margins.

A spokesman said Asda was funding the cuts via growth in sales volumes, cost reductions and better terms with suppliers.

Tesco, the country's biggest retailer, said on December 31 it was introducing 12,000 special offers that would save customers an estimated 280 million pounds.

Both Tesco and Asda also said on December 29 they would freeze VAT on some products at 15 percent, despite an increase in the tax rate to 17.5 percent on January 1.

The battle comes at a time when supermarket sales growth is slowing due to the disappearance of food price inflation.

Last month, Tesco reported a 2.8 percent rise in sales at British stores open at least a year, excluding fuel and VAT, for the 13 weeks to November 28, down from 3.1 percent in the previous quarter. 

Analysts expect J Sainsbury, the No.3 grocer, to report on Thursday a 3.8 percent rise in underlying sales for the 13 weeks to January 2, down from 5.4 percent in the previous quarter.

Asda said last week it had a "solid" Christmas, but did not give a precise sales figure.

($1=.6211 Pound)