United Kingdom - Asda warn of supermarket price war

PRICE competition between retailers this Christmas will be the most cut-throat for a decade, Asda forecast yesterday.

Asda and Tesco, Britain's two food retailing market leaders, went public yesterday with promises of hundreds of millions of pounds of savings for customers as the sector enters its busiest time of the year.

It came as Asda posted like-for-like salADVERTISEMENTes up 5.6 per cent in the quarter to the end of September, as its market share rose from 16.9 per cent to 17.3 per cent.

Like-for-like sales growth at the group over the first nine months of the year was 7.1 per cent.

Rival Sainsbury's revealed on Wednesday that its like-for-like sales grew 5.7 per cent in the 28 weeks to 3 October as its chief executive Justin King also predicted festive trading would be "feisty".

Judith McKenna, Asda's chief financial officer, went further yesterday, saying: "This year will be the most aggressive on price in a decade."

McKenna revealed that the company is to cut prices on 50 home technology products and accessories as part of the festive price war, including branded televisions and DVD players, mobile phones and sat-nav systems.

The move follows similar pre-Christmas offers from the group covering music, games, toys and clothing, with Asda claiming it will save customers £150m this Christmas.

Tesco responded yesterday by promising customers savings of £250m. Carolyn Bradley, Tesco's UK marketing director, said the supermarket was running "more offers than ever before".

Retail analysts said Asda, Tesco and Sainsbury were all expanding non-food ranges, which tend to attract higher profit margins than groceries. "That, in turn, is ratcheting up the pressure this Christmas on specialist retailers," one analyst said.

Supermarkets are also fighting over the market share of toys-to-DVDs chain Woolworths, which collapsed last Christmas.

McKenna painted a downbeat picture of consumer sentiment more than a year into the recession. She said expectations of future tax hikes and public sector job cuts continued to weigh on consumer optimism.

"Customers tell us they continue to be under pressure and they remain cautious. People are reluctant to spend any cash they have," McKenna added.

Asda's sales performance in the latest quarter to September was a slowdown from the previous quarter's 7.2 per cent rise, which it said was entirely due to falling food inflation.

The group, which is owned by Wal-Mart, said it expected food inflation to remain very low into the Christmas period, helping its planned reductions. McKenna said consumers were expected to pick practical yuletide gifts like bags, ties and belts.