Tesco escalates stores price war

TESCO HAS increased the pressure on its supermarket rivals by announcing substantial price cuts on "hundreds of items" from Monday.

The cuts are being made in advance of an Office of Fair Trading report on supermarket profits, which is expected to be published in the next few weeks. However, Tesco denied it was a public relations stunt. "These are substantive cuts that will make a real difference," aspokesman said.

The price cuts will include both branded and Tesco products, in food and non-food ranges. Head and Shoulders shampoo will be reduced from pounds 2.49 to pounds 1.99. The price of a medium-sized whole chicken will fall from pounds 2.99 to pounds 2.49.

Analysts at Credit Suisse First Boston said Tesco's campaign was the biggest for more than two years, and would involve gross investment of pounds 60m. Tesco said the cuts had been budgeted for and would not affect profit forecasts.

Rivals were dismissive of the campaign, and one pointed out that Tesco also chose yesterday to increase the price of its cheapest loaf of bread from 7p to 17p after the "bread wars". Sainsbury's said it would monitor developments. Asda said it was already cheaper on some of the products mentioned.

But Steve Woolf, supermarket analyst at Paribas Capital Markets, predicted that Tesco's rivals would be forced to match the price cuts. "It is a significant development because most of the other supermarkets are likely to follow," he said.

Shares in Sainsbury's and Safeway fell late yesterday as analysts said they would be the most affected. "They don't have that buffer zone on higher margin non-food business," one analyst said.