Tesco spends £500m on Big Drop price cuts

Tesco will launch its biggest price campaign in a quarter of a century from Monday, promising more than £500m of price cuts, and heralds a fundamental shift in its pricing strategy with fewer promotions.

Richard Brasher, the UK chief executive of Tesco, said the price cuts on more than 3,000 products, including milk, bread, fruit and vegetables, were the biggest in his 25 years with the retailer.

The UK's biggest grocer will partly fund its Big Price Drop campaign through cost-savings but a far bigger chunk will come from Tesco ending the double-points promotion on its Clubcard loyalty card in four weeks. A Sainsbury's spokesperson said that the Clubcard move would "save Tesco £350m".

Tesco has launched the campaign to arrest its declining market, at a time of a brutal squeeze on consumer spending. According to Kantar Worldpanel, Tesco's market share has slipped to 30.4 per cent in recent months.

Mr Brasher said the so-called "squeezed middle" accounts for probably 80 per cent of the country and he believes the initiative could "halve" the impact of grocery inflation.

But Asda also poured scorn on Tesco's campaign. A spokesman said: "Yawn. We were 10 per cent better value yesterday. We're 10 per cent better value today. We'll be 10 per cent better value, whatever they do, come Monday."

Clive Black, an analyst at Shore Capital, said he did not see Tesco's move as kicking off a new "price war", adding the last genuine one took place in 1995 that was started by Somerfield. However, he said the move was "a significant notch-up".

About a third of the 3,000 products will be Tesco own-label. While Tesco claims that some products will be 50 per cent cheaper than branded rivals, most of the selected items will be 15 per cent to 20 per cent cheaper.