Sainsbury's steps up price battle

NIGEL COPE

Sainsbury's escalated the supermarket war yesterday when it launched a price-cutting campaign, as figures showed that its market share was still declining.

Its challenge comes a few days after Iceland, the frozen food retailer, said it was cutting some prices to 1986 levels. And yesterday Asda stepped up its campaign for cheaper medicines with a legal challenge to the price- fixing agreement which covers non-prescription drugs.

Tony MacNeary, supermarket analyst at the stockbroker NatWest Securities, expected other supermarkets to hit back at Sainsbury's move.

"I can't believe rivals are going to sit there and do nothing," he said.

Tesco and Safeway held strategy meetings yesterday to decide their response. But Sainsbury's attack is not expected to trigger an all-out price war. "This is not a price war; it is just another skirmish," Mr MacNeary said.

Sainsbury's has been consistently outflanked by Tesco and Asda, which have launched aggressive price promotions.

However, the group played down price-war fears, saying it was simply trying to "counter the post-Christmas blues" by cutting the price of 200 product lines by up to 50 per cent during January. The offer includes 2.5kg bags of potatoes down from pounds 1.39 to 69p and Sainsbury's Red Label teabags, reduced from pounds 1.75 to pounds 1.15. Sainsbury's says that the promotion will save customers pounds 20 on a typical weekly shopping basket of pounds 70.

Rivals criticised the campaign as little more than a gimmick.

Tesco said: "All the things Sainsbury's are doing we are doing already. It's nothing special." Asda said the campaign was "short-term price gimmickry" and said surveys consistently showed it to be the lower-cost supermarket.

Figures released yesterday by the AGB research group for the four weeks to 17 December show Tesco as the market leader with a 21 per cent share, up 2.2 per cent on last year. Sainsbury's fell to 19.4 per cent, while Asda and Safeway, in third and fourth places, also recorded gains over the year.

Sainsbury's is expected to offer other deals this year to try to regain ground lost to rivals which have launched loyalty cards and other campaigns.

One analyst said: "We are expecting the big one from Sainsbury's but this isn't it."

In the battle for the non-prescription medicine market, Asda is seeking a binding tariff declaration to determine the designation of the product. If successful it would provide Asda with a platform to extend its challenge to other vitamins and minerals and all over the counter medicines. Asda, which is seeking to break the price maintenance agreement covering non- prescription medicines, is concentrating its legal challenge on cod liver oil.

Elsewhere, retailers reported a strong start to January sales. The British Retail Consortium said sales were strong in clothing, linen and electrical goods; larger retailers were doing better than smaller shops. London stores reported hordes of overseas customers, attracted by lower prices and a favourable exchange rate.

The Lakeside shopping Centre in Thurrock, Essex, said sales were stronger than last year with the average number of shoppers up to 600,000 per week. In Sheffield, the Meadowhall shopping centre also said sales were stronger than last year.