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Asda heats up supermarket price war by cutting bills to Wal-Mart levels

BRITAIN'S supermarkets face a fresh challenge with the announcement yesterday by Asda, recently taken over by America's Wal-Mart, that it will halve some of its prices to the low levels paid by consumers across the Atlantic.

The price of a 2 litre bottle of Coca-Cola, currently pounds 1.25 in Asda stores, will drop to the 63 pence charged by Wal-Mart. The price of 100ml of Colgate toothpaste will fall from pounds 1.45 to 74 pence.

Other prices will fall less dramatically, but Asda said reductions in the cost of 10,000 items, mainly soft drinks, health and beauty products and household products, over the next 18 months would fall enough to make its prices 10-15 per cent lower than those charged by its competitors. Asda already claims a 5-10 per cent price advantage over other supermarket chains.

The arrival of Wal-Mart in the UK heralds what many experts predict will be a massive shake-up amongst supermarkets and other retailers. It can keep prices ultra-low because of its massive buying power as the biggest supermarket in the world.

Already its takeover of Asda has brought a reaction from another US giant. Costco, a discount warehouse chain, has said it hopes to open 40 mega- stores in this country, up from its current total of seven stores with planning applications for a further six.

British supermarkets are sure to respond too. Safeway said late last month that it would cut prices on more than 700 products, selling, for example, Colgate Freshstripe toothpaste at pounds 1.85 compared to pounds 2.05 in Boots.

Toiletries are a particularly competitive area, with Boots and Superdrug also in the fray.

The new pressure from Wal-Mart comes as British supermarkets have been under fire from the competition authorities and farmers. The Competition Commission launched an investigation into supermarket pricing. And farmers have accused the big chains of making massive profits on foods for which prices at the farm gate have been diving.

The Government has also frequently pointed out how much more British consumers have to pay for goods compared to Americans. However, one obstacle to increased competition is the difficulty of obtaining planning permission for new superstores, a process which Costco has described as "slow, expensive and uncertain".

The announcement of the latest round of price reductions was made by Allan Leighton, Asda's chief executive, in an interview with the BBC yesterday. It follows a first round in August, when the supermarket chain said it had earmarked pounds 30m for discounts.

Independent market research has confirmed that since then Asda's sales growth has outstripped that of other supermarkets. Taylor Nelson Sofres said Asda's sales had leapt a record 13.6 per cent in four weeks.

Mr Leighton said: "Asda is on the up because our prices are coming down."