7p loaf marks greatest price war since sliced bread

THE 7P loaf was on offer yesterday as a bread price war broke out in supermarkets. Asda slashed the cost of a standard white sliced loaf to 9p, followed by Tesco before Kwik Save pipped them at the post with its No Frills bread 2p cheaper - which Tesco matched yesterday.

All claimed to be offering the customer the best value in the latest round of promotions since the Office of Fair Trading launched an investigation into alleged supermarket profiteering last year.

The offers follow a warning before Christmas from Colin Smith, the chief executive of Safeway, that declining consumer confidence could spark a price war.

Local price cuts in some supermarkets in Leeds, home to the headquarters of Asda, triggered the round of reductions. An Asda spokesman said they had decided to respond, but their policy was to have the same prices in all stores. "This is not a kneejerk decision, it's a strategic decision," he said.

A Tesco spokesman said they had followed suit because their customers expected them to match rivals, adding: "We think this is the cheapest price since decimalisation."

Jill Rawlins, of Kwik Save, said their 17p to 7p cut was to show that they were not only competitive but cheaper "than those with bigger [promotion] budgets. "There's more than the money angle," she said, adding that research after the last baked-beans war showed that customers were now more aware of the company's commitment to being the cheapest.

David Smith, chief executive of the National Association of Master Bakers, said the large supermarkets were trying to protect themselves against discounting stores. "There is absolutely no way at that price you are even covering the ingredients used in a loaf of bread. The supermarkets are using large industrial bakers to produce this flour and water rubbish at a low price."

Marcus Greenwood, who runs a family chain of seven bakeries in Greater Manchester, has felt the effect on his trade in bread since the arrival of Asda, Sainsbury and Tesco near his shops and says the price war will only make things worse. "When a supermarket sells really cheap loaves, customers will go there to buy them. They would be stupid not to," he said.

He said his bakeries had had to adapt: "While bread was once 60 per cent of the business, it now accounts for about a quarter. We have had to diversify into sandwiches and other kinds of fast food. I don't think any normal craft baker would have survived unless they gone into other markets."

Richard Hyman, chairman of the retail research company Verdict, said bread was a KVI - a known-value item - which regular shoppers know the price of. This made it difficult for other supermarkets not to follow suit if one significantly cut the price of such a staple, although Sainsbury and Safeway have not.

Bread at this price could not be profitable but the extra publicity generated made up for it, he said. The effect was quite subtle: customers did not necessarily change allegiance because of the price of bread. But if they realised a rival was selling it more cheaply they might question the prices of other goods in their favoured store.

High Street Battle

Baked beans: At the height of the "bean war" three years ago, sparked by Tesco reducing the price of a tin to 3p, a small supermarket in Somerset paid customers 2p for each tin they took away.

Bananas: Bananas became the focus of intense cost-cutting of fruit and vegetables in late 1995. The price of a pound plummeted to 15p in some stores.

Designer clothes: When Tesco offered Levi Strauss jeans for pounds 30, it was threatened with a writ from the clothes company. It issued a retaliatory writ in October.