Asda turns up heat in petrol price war with 'no-profit' offer

Supermarket group Asda turned up the heat in the petrol price war yesterday saying it would start selling "profit-free" petrol at its hypermarkets from this weekend.

Although Asda will be selling petrol at essentially cost price, the offer is restricted to its 10 largest stores. These include branches in Edinburgh, Bristol, Watford and Manchester. They will be labelled "profit-free zones" and the lowest price of a litre of unleaded will be 49.9p. A litre of four-star leaded will be cut to the same figure in two Scottish stores, and to 50.9p elsewhere.

Asda said that in spite of the price war petrol prices varied widely across the country and claimed that some retailers were still "making a massive " profit on fuel sales. Asda's action was immediately criticised as "a triumph of hype" by its rivals who said that a cut in just 10 outlets was "no big deal".

However, Tesco, Sainsbury and Safeway all said they would reduce prices in certain locations to match Asda's offer.

Kevin Hawkins of Asda said: "You have to remember that most of us are already selling petrol at a loss in certain areas such as London. No one is making much money, anyway. But we will cut prices if appropriate."

Tesco re-stated its pledge to be "unbeatable" on petrol and said the discount points that could be collected on its Clubcard loyalty scheme made its offer even more attractive.

Sainsbury's issued a statement saying there was "nothing unusual" about selling profit-free fuel. It said it was committed to offering the best possible value to customers.

The supermarkets, which now account for a quarter of petrol sales in the UK, have been offering special promotions in a bid to maintain market share. All have seen sales squeezed and many do not reveal how much money they make from petrol retailing. Asda's petrol profits were pounds 12m last year, according to broker NatWest Securities.

Esso started the petrol price war in January when it cut the price of its fuel by 4.4p a litre and pledged that it would not be beaten on price in a three-mile radius. It cancelled its long-standing Tiger Tokens offer to help pay for the campaign.

Rivals have followed suit and are feeling the pain. Even BP is losing money on petrol sales in Britain.

However, the real squeeze is on the independent petrol stations and the smaller oil companies that do not enjoy the same economies of scale.

The Petrol Retailers Association has said that thousands of petrol stations will go out of business, threatening up to 50,000 jobs.

The price war has been easing recently with thebig groups increasing prices. The share prices of the supermarket groups have been under pressure because of the battle on the forecourts but they rose across the sector as some analysts turned bullish on their prospects, predicting trading conditions were set to improve.