UK: Tesco/Asda: aggressors in UK price wars (COMMENT)
The recent lull in hostilities in the UK's supermarket price wars ended this week, as Tesco and Asda decided to make over £100m (US$161m) worth of price cuts, in an attempt to respond to consumers' perceived desire to reduce spending in the wake of the economic slowdown. If the supermarket war of 1999 is anything to go by, the price cuts could cost rivals dearly.
Tesco plans to reduce the prices of over a thousand products by up to a third, whereas Asda, which is owned and backed by the Wal-Mart Group, is slashing the prices of many items in its George range of clothing. This is in addition to the 'rollback' program, which continually seeks to reduce the price tag of core products.
A vicious price war in 1999 between the large supermarkets wiped billions from the stock market values of smaller chains such as Iceland and Somerfield and these are the most likely to suffer again from this new round of price cuts.
However, this news has been greeted with a healthy dose of scepticism by other retailers, who point out that large price cuts are frequently preceded by increases in the months leading up to the reductions, and that the prices of products not affected by the cuts are often discreetly increased to compensate.
Other competitors likely to be harmed are Marks and Spencer and Next, who compete with Asda in clothing, as well as Sainsbury's and Safeway whose core "Middle England" customer base is being targeted by Tesco and Asda. The two aggressors will have to wait and see whether their strategies lead to the anticipated trolley dash in the direction of their checkouts.
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