Safeway prices drop 24 per cent after Morrisons takeover

WM Morrison piled the pressure on its underperforming rival J Sainsbury yesterday when it revealed it had slashed the cost of shopping at Safeway by 24 per cent since taking control of the supermarket chain last month.

WM Morrison piled the pressure on its underperforming rival J Sainsbury yesterday when it revealed it had slashed the cost of shopping at Safeway by 24 per cent since taking control of the supermarket chain last month.

The Bradford-based group has promised to lower the price of 4,300 products in Safeway stores over the next few weeks. Yesterday it said thousands of price cuts had been introduced since early March, saving Safeway shoppers more than £600 per year.

Customers seeking to boost their iron intake with fresh broccoli will recoup the biggest saving: a crown of broccoli is 61 per cent cheaper than it used to be, costing 35p down from 89p. A loaf of Hovis brown bread costs 39 per cent less, at 36p against 59p, while four Andrex loo rolls will set you back £1.55, rather than £1.99.

The price cuts have been extended to the limited range of non-food items sold at some of Safeway's larger stores. The cost of a chart CD has come down to £9.77 from £11.99, in line with the price charged by the market leader, Tesco.

Analysts said the depth of the price cuts would increase the woes of the industry's chief laggard, Sainsbury's. The struggling retailer, which was overtaken by Asda as the country's number two supermarket chain last year, has already issued one profit warning, blaming "intense price competition". Although Justin King, its new chief executive, is expected to launch his own price salvo this summer, few observers believe it will do much to restore Sainsbury's dwindling market share.

Analysts at Merrill Lynch have calculated that J Sainsbury would need to spend £650m - almost one year's pre-tax profit - to bring its prices down by 5 per cent to match those at Asda and Tesco. Research by the bank, which tracked a basket of 3,000 grocery items across the UK supermarket sector, revealed that Sainsbury's was 74 per cent more expensive than Asda and Tesco.

Morrisons said shoppers at Safeway's larger stores, which will shortly be re-branded as Morrisons, are paying almost £12 - or 24 per cent - less for a basket of 23 products than they were under the group's old management. Marie Melnyk, the joint managing director of Morrisons, said: "These are permanent price cuts, from a loaf of bread to fruit and veg, through to wines, spirits and home and leisure goods."

Morrisons last month pledged to cut prices at Safeway by an average of 6 per cent by the autumn. It is attempting to stem a like-for-like sales decline of 4 per cent at Safeway.

This week will be the first test of how Safeway fares without its promotional "loss leader" flyer to lure in shoppers. Morrisons has estimated that it will save £75m by axing the flyer, money that it plans to invest in lowering prices. The company is renowned for its promotions and employs the same everyday-low-pricing strategy used by Tesco and Asda.