Price war fears hit supermarkets

Supermarket shares were marked down sharply yesterday as J Sainsbury, the market leader, announced January discounts of as much as 50 per cent, raising the old bogey of a groceries price war.

Tesco, the second largest grocer, responded that it would cut prices on more than 1,000 products from all sections of stores on January 4. Other grocers, including Asda and Safeway, claimed to be running special offers too.

Analysts said fears of a price war were massively overdone. Sainsbury was cutting the prices of only 750 of its 15,000 lines and has run a similar winter promotion for the past three years.

Nevertheless, its shares fell 14p to 561p; Tesco was down 15p to 251p; Argyll Group, which owns Safeway, fell 22p to 398p; and Kwik Save, the biggest discounter, fell 22p to 784p. Some food manufacturers were also hit.

The Sainsbury price cuts will start in 140 stores that open this Sunday, and in all 327 stores on Monday, continuing for about four weeks. Many lines will be 25 per cent off, Sainsbury said, with a few prices slashed in half. Products from every category, including bakery, fresh produce, groceries, delicatessen and frozen foods, would be discounted.

David Shriver, food retailing analyst with County NatWest, said: 'This is certainly not the start of a price war as the stock market originally feared. It is just a repeat of the successful promotion Sainsbury ran last year.'

The stock market reaction yesterday was a repeat of 12 months ago, when Sainsbury announced 'deep price cuts'. Then, its shares fell 14p to 359p amid similar jitters. Since then they have climbed 56 per cent.