Tesco launches £500m price offensive

'The Big Price Drop' campaign will be partly funded by Tesco dropping its double-points promotion on its loyalty Clubcard in four weeks' time

Tesco will launch its biggest price campaign in a quarter of a century from Monday, promising more than £500m of price cuts and heralding 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 costs savings, such as those delivered by supply chain efficiencies, but a far bigger chunk will come from Tesco ending the double-points promotion on its Clubcard loyalty card in four weeks time.

A Sainsbury's spokesperson said: "This is classic smoke and mirrors from Tesco, giving with one hand and taking with the other. Removing double Clubcard points will save Tesco £350m."

Tesco has launched the price campaign to arrest its declining market, at a time of a brutal squeeze on consumer spending. According to Kantar Worldpanel, Tesco's market share dropped by 0.4 per cent to 30.4 per cent over the 12 weeks to 4 September.

Mr Brasher said the so-called "squeezed middle" accounts for probably 80 per cent of the country and he believes the initiative - for which he said no end date has been set - could "halve" the impact of grocery inflation on consumers.

But Asda 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, the 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 kicked off by Somerfield.

However, Mr Black said: "It [Tesco's move] is a significant notch up." Indeed, Tesco's Big Price Droop appeared to knock the stuffing out of Sainsbury's and Ocado's shares. Sainsbury's fell by 11p, or 4 per cent, to 263.5p – its lowest since October 2008.

The online grocer Ocado, which promises to match Tesco's prices on large number of groceries and floated at 180p in July 2010 – sank to an all-time low of 96.2p. On a day of the biggest fall in the stock market for two and a half years, Tesco and Morrisons fell more modestly by over 2 per cent.

Mr Brasher said Tesco intends to focus "more on the individual prices of products". He said: "We're giving customers a more straightforward shop – reducing the number of promotions and putting the emphasis on clear reliable savings." While Tesco is ditching its double Clubcard points promotion, it will improve the value customers get on their vouchers from three to four times the value on certain offers.

After speaking to 200,000 customers, Mr Brasher reported that they wanted the savings today, not tomorrow.

About a third of the 3,000 products covered by the initiative will be Tesco's own-label. While Tesco claims that some of its own-label 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.

Mr Black said: "We see the prime emphasis of this work as focusing on the value end of the market, giving Aldi, Asda, Iceland Food Stores and Lidl in particular something to think about."

Tesco will launch a TV advertising campaign on Sunday night. The price push will include some non-food lines.