01 September 1999

BETWEEN £250M-£300M will be lopped from prices this year by Tesco, Britain’s largest food retailer. The campaign, which launches next week, is designed to counter Asda’s promise to cut prices on 10,000 products over the next 18 months - a move that will reduce retail prices to around those charged in the US by Asda’s parent, Wal-Mart. The Square Mile believes Tesco can implement these cuts without seriously impairing its net margins [which can only underscore allegations of gross over-pricing hitherto]. But analysts warned that Tesco’s rivals are less well upholstered against the effects of an ongoing price war. Opined one EC2 bookie: 'Most ... will find the scale of the price cuts difficult to participate in whilst retaining some sort of profitability.' He predicted that suppliers of products such as detergents and toiletries are likely to be worst hit, as will own-label manufacturers. 'If you start selling Coca-Cola at 63p, where do you price your own label? The implications are staggering.' Own-label manufacturers, however, are more sanguine: 'Own-label gives retailers a higher margin than brands and we believe they will give them priority', said one. 'We have seen it working in one retailer and volumes have been going up.'