Asda slashes milk costs as price war escalates

Asda is opening a new front in the supermarket price war today, as the Wal-Mart-owned grocer revealed buoyant sales in its second quarter.

The UK's second biggest supermarket is cutting prices across its milk range to 50p for two pints, the lowest since 2001, as part of a wider campaign that lasts until the end of Sunday.

Yesterday, Tesco tried to steal its thunder by saying it had put 18,000 products on promotion this week, as part of the £620m price cuts introduced since March.

Asda, which has 329 UK stores, is slashing the price of a number of other core grocery items to 50p this weekend, including its own-label orange juice, 250g of beef mince, 8 pork sausages and Iceberg salad. Its previous 50p campaign was at the end of June.

However, retail analysts believe the current so-called price war among the big grocers is less fierce than that waged in the 1990s, when the German discounters, Aldi and Lidl, launched in the UK. The Exane BNP Paribas analyst Tim Attenborough said: "It is a very competitive market, but this [latest round of price cuts] is not heralding a value-destructive price war."

Asda said that its like-for-like sales grew by 5.5 per cent, excluding petrol, for the three months to 30 June. When the impact of the timing of Easter this year is stripped out, underlying sales growth was 6 per cent.

Judith McKenna, Asda's chief financial officer, declined to provide a figure for its food price inflation, but said its volume growth was "healthy". She said Asda was not losing market share to the discounters, such as Aldi, Lidl and Netto, which are enjoying a boom, partly by attracting a growing army of middle-class shoppers into stores during the credit crunch.

For the 12 weeks ended 13 July, Asda received a 12.3 per cent share of total till roll sales in the UK, whereas the discounters' combined sales were 4.3 per cent, according to TNS Worldpanel.

Ms McKenna said that Asda's sales growth in the second-quarter was driven by record sales of frozen food, as well as strong growth in its premium own- label and organics offer. The grocer also delivered robust sales at its London stores, where service and availability have improved, and at southern coastal resort town stores, as more people holiday in the UK. Ms McKenna said: "The coastal stores this summer have traded phenomenally well."

She said that its frozen food sales were growing by about 20 per cent, adding "it was one of the strongest periods of growth in frozen food" since it was acquired by Wal-Mart in 1999.