Sainsbury's cuts 200 prices in new store war

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Sainsbury's and Tesco stepped up the pressure in the supermarket price battle yesterday, when they both announced new price promotions. Sainsbury is extending its January Savers into February, with price cuts of up to 50 per cent on 200 products.

Tesco is cutting the price of its in-store bakery products by up to 30 per cent from Monday. It says the cut is permanent and will "lead a new round of price reductions".

The fresh wave of aggressive price-cutting caused shares in most of the leading supermarket groups to fall and several analysts lowered their profit forecasts. All the leading chains are using either loyalty cards, price promotions or both to grab market share from rivals in an increasingly bitter battle.

Asda, which has been one of the most aggressive price-cutters, with promotions on books, drugs and bananas, said: "Our shoppers want prices they can rely on, not short-term promotions." Safeway has made no announcements on fresh price initiatives.

Andrew Fowler, food retail analyst at UBS, said: "It is clear that one way or another - whether it is through petrol prices or promotional campaigns, the profit margins are going to come under pressure."

Sainsbury's "February Bonus" offer starts on Sunday and includes special offers relating to Valentines Day, the Chinese New Year and Pancake Day. Leading brands, such as Cadbury's Dairy Milk chocolate, Heinz Spaghetti and McVities Digestives are included. A 600ml bottle of Ribena is reduced from pounds 1.83p to pounds 1.59 while HP sauce is half price at 62p. However, many of the offers are "buy one, get one free" deals rather than straight price cuts.

The campaign follows Sainsbury's "January Savers" promotion which the company says caused many of the promoted lines selling out. A year's supply of Chicken Tikka was sold in two weeks.

Sainsbury's is now expected to offer a fresh campaign every month, though will be backed by a lower level of advertising than the original January programme. Kevin McCarten, the company's marketing director said: "Our commitment is to offer great value week in, week out."

Tesco's offer is restricted to the bread it bakes in 425 of its stores. John Gildersleeve, a Tesco director, said: "We decided the time was right to tempt more people to the delights of fresh bread. From now on, it doesn't have to be a special treat."

The new prices mean a crusty white bloomer is 59p instead of 74p and six jam doughnuts are 69p instead of 99p. The promotion is being supported by a new TV advertising campaign, starring Prunella Scales and Jane Horrocks, which will start on Monday.

The major supermarkets are already embroiled in a petrol price war with the major oil companies, which has seen the price of a litre of unleaded fall to 49.9p per litre. Esso started the battle last month. Shell and BP have followed.