Morrisons fires gun on new round of price wars

Cuts to cost of food are delight for shoppers but will hit profits

SUPERMARKETS are preparing for a sudden escalation in the food price war that has already decimated profits across the sector in a desperate attempt to attract shoppers.

Morrisons will this week launch a salvo of price cuts – piling pressure on domestic rivals such as Asda and Tesco while trying to fend off German discounters Aldi and Lidl.

This fresh round of price battles will deliver yet more savings for shoppers, but City analysts point out that the relentless cuts will deal another blow to supermarket profits.

Morrisons will tomorrow slash the cost of 160 core items. More than 100 meat and poultry products will be cut in price by up to 20 per cent, while some vegetables will be reduced by more than 37 per cent.

At the same time Asda is understood to be preparing to dig into a war chest – which could total as much as £900million – available for price cuts between now and the end of 2018. This is despite an executive at owner WalMart last month attempting to dismiss speculation of a revival of the price war.

A source at a rival supermarket said Asda’s stated aim of ‘improving retail basics, cost reduction and strategic price investments’ was admirable. But the source added that in the short term there was ‘barely any room left’ for Asda to manoeuvre other than on price if it was to effectively stem its sales slide.

Asda has suffered a 12 per cent dive in like-for-like sales in the past two years.

City retail analyst Dave McCarthy at HSBC said: ‘That’s not a good place to be for a retailer. My belief is that Asda has got to do something and what else has it got apart from price?’

He added that it was ‘highly probable’ Asda will act decisively on price in the coming weeks to reassert itself against rivals.

Britain’s biggest retailers have been shocked by the growth of Aldi and Lidl which now have 10.7 per cent of the food market, according to shopper behaviour analyst Kantar Wordpanel. That compares to 6 per cent five years ago.

Senior supermarket sources said big food

retailers had ‘paused for breath’ over price cuts during the summer.

But several said there was growing evidence of looming promotional activity among the major firms in the coming weeks that could squeeze the stragglers.

One said: ‘There is a feeling here that we are getting closer to meeting this incursion from Aldi and Lidl and now is not the time to take the foot off the pedal.

‘The next few weeks will be important in setting the tone as we head into the “Golden Quarter” of the year and into Christmas. You can expect some fairly aggressive action on price.’

Wal-Mart, which owns Asda, is the biggest retailer in the world with sales of £362billion. It installed Sean Clarke as Asda chief executive from its Chinese business in July in order to kickstart the firm’s turnaround.

Meanwhile, Tesco and others have been quietly trimming prices to exert pressure on rivals and to exploit disarray in the sector.