Tesco and Asda price war adds to heat on Morrisons

Tesco Will today square off against Asda in the latest skirmish in the permanent supermarket price war, as the two strongest players turn the screws on their weaker rivals.

Tesco Will today square off against Asda in the latest skirmish in the permanent supermarket price war, as the two strongest players turn the screws on their weaker rivals.

Tesco, the UK's number one grocer, is pledging to sink £67m into lowering the cost of even its most basic items. The move comes less than 24 hours after second-place Asda, which is owned by Wal-Mart of the US, unveiled more than £100m of price cuts.

The move will pile further pressure on Wm Morrison, which last month reported a drop in underlying sales at its core estate and issued its third profit warning since last summer. It could also jeopardise the nascent recovery at J Sainsbury, which has already sacrificed most of its profit margin in an attempt to bring its prices into step with its rivals. Justin King, the chief executive, has cut 6,000 lines since taking over last year.

Asda is fighting to maintain its reputation as the UK's cheapest place to shop. Tesco yesterday claimed to have invested £1.6bn in price to Asda's £1bn. But Asda has trounced Tesco's record so far in 2005, with yesterday's cuts bringing to £231m the amount it has spent lowering prices, to Tesco's £147m.

Tim Mason, Tesco's marketing director, said: "Today's cuts will make some really staggeringly low prices even lower." Angela Spindler, Asda's trading and marketing director, countered: "Our cuts are the deepest and broadest we have ever made and show that, when it comes to value, there are those that talk and those that deliver."

Sir Ken Morrison recently blamed an "increasingly competitive marketplace" for Morrisons' woes, although some analysts have questioned whether the first quarter of 2005 was any tougher than last year.

Tesco is targeting one in six of its 300 price cuts at its Value brand, lowering the cost of shopping for fans of its cheapest range by 14 per cent. Under its Value banner, it will sell 1kg of baking potatoes for 40p, as against 68p previously, and plums for 66p, down from 70p. A small cheese and tomato pizza will cost 31p, a 3p cut.

Like Asda, Tesco has also cut the cost of a pair of jeans to £3. Tesco, which launched the Value brand 12 years ago, recently introduced a new Value line of electricals. It is planning to expand the brand to a special tariff for pre-pay mobile customers.