Asda promises more price cuts, as cost of UK groceries falls

It's looking like a cheap Christmas ahead

Updated: 
Asda results

Asda has revealed that it's planning a new £500 million round of price cuts in its stores, on top of the £1 billion it announced last year, as the supermarket price war shows no sign of easing.

Last week, chief executive Andy Clarke said that the company planned to continue to focus on "everyday low prices", rather than promotions and vouchers. And now, in an interview with the Mail, he says that this will mean a significant new investment.

"We said we are going to invest £1 billion in price, and we are well into that investment plan. That's still a moving target in that it's more likely going to be more than that," he said.

"It is wrong of me at this stage to say what that means, but the investment in price is something we are going to continue to stay very focused on."

He added that he believed the strategy was paying off: "We are fairly confident the direction of travel is the gap getting narrower and we want to keep going. The good news is – from our perspective – we are ahead of the curve," he said.

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The statement comes hard on the heels of a report from analyst Kantar Worldpanel showing that UK grocery spending has fallen for the first time in 20 years, largely as a result of price cutting efforts on the part of the big four supermarkets. Sales are down 0.2% compared with this time last year.

And of the major supermarkets, Asda appears to be the winner, with sales value having fallen only in line with the average of 0.2%. Tesco's sales, meanwhile, have fallen by 3.7%, and Sainsbury's and Morrisons by 2.5% and 3.3% respectively.

Between them, the big four have spent billions of pounds on cutting prices in an effort to ward off competition from Aldi and Lidl. The German discounters have hugely out-performed their rivals, with Aldi showing sales up 25.5% on last year and Lidl up 16.8%.

Shoppers are already paying less for their groceries than they were last year, and this latest news from Asda indicates that the price war is likely to continue - good news for shoppers this Christmas.

"The declining grocery market will be of concern to retailers as they gear up for the key Christmas trading season," says Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel.

"The fight for a bigger share of sales has ignited a price war which means an average basket of everyday goods such as milk, bread and vegetables now costs 0.4% less than it did this time last year. This is bad news for retailers, but good news for shoppers with price deflation forecast to continue well into 2015."

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