Tesco wades into price cuts war

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Published: Thursday 8th January 2015 by The News Editor

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Tesco has fired the latest salvo in a New Year supermarket price war by cutting the cost of some of its best-known products.

The under-pressure grocer, which is due to present Christmas sales figures later today, said the move meant average savings of 25% on 380 items under brands including Hovis, Coca-Cola, Marmite and Tetley.

The price cuts are the latest in the industry after Asda yesterday cut the prices of 2,500 ”essentials” such as fruit and vegetables, cereal, nappies, toilet rolls, milk, meat, eggs and fish. Rival Sainsbury’s also announced further reductions as part of a £150 million price-cutting plan disclosed in November.

The UK’s four big supermarkets are battling over a dwindling middle market which continues to be gnawed away from high-end Waitrose sales and rapidly expanding budget grocers.

Tesco’s chief customer officer Jill Easterbrook said the cuts formed part of a strategy to improve the company’s focus on service and availability.

She added: ” We know that customers want to see changes in the way we serve them. One of the biggest things they’ve been saying is that they want prices which are simple, consistent and low.

“The changes we’re making today are a first step in that direction – and we’ve focused on many of the favourite brands customers choose every day.”

Tesco is attempting to lead a fightback after a dire 2014 saw it issue a number of profit warnings, culminating in December’s forecast that annual trading profits will slide to £1.4 billion from the £ 3.3 billion achieved for 2013/14.

New chief executive Dave Lewis will give more details of his plans for the beleaguered grocer alongside Christmas sales figures today.

Options open to the former Unilever executive are likely to include a sell-off of Tesco’s outposts in Asia and central Europe as well as non-core brands such as UK download business Blinkbox.

The chief executive has focused on increasing product availability and staff in stores but analysts expect head-office jobs could be at risk.

Mr Lewis has also not ruled out the possibility of a cash call on shareholders as the group gears up for the latest round of the intense price war that has gripped the sector amid a squeeze by discounters Aldi and Lidl.

It is expected to reveal more sliding sales to book-end a dismal 2014 which saw the departure of Mr Lewis’s predecessor Philip Clarke.

On Wednesday, Sainsbury’s raised hopes for a better-than-expected performance from Tesco when it reported a 1.7% drop in like-for-like sales in the 14 weeks to January 3, better than the 2.8% dip in the second quarter.

Tesco has said its update will include measures it plans “to improve the competitiveness of the UK customer offer and to strengthen the balance sheet”.

It remains haunted by an accounting scandal which surfaced in the autumn and involved rebates from suppliers being moved around to different periods in its profit-and-loss figures, going back at least as far as 2012/13. The Serious Fraud Office is investigating.

The affair was partly responsible for the latest £500 million profits warning last month as Tesco shakes up the way it deals with its supply chain.

Analysts at Cantor Fitzgerald believe UK trading profit may have been wiped out in the second half of the financial year.

They are pencilling in a trading loss for the domestic business of £84 million for the six-month period to February.

Cantor’s Mike Dennis is expecting a possible £4 billion of asset sales and a £2 billion write-off in the value of Tesco’s current stores and future pipeline, as well as a new pricing strategy and savings including £250 million from head-office closures.

He said supply-chain issues needed “further explaining by Tesco management”, with the level of impact of its supply chain shake-up implying that there should be a total re-audit of several years of the group’s accounts.

Mr Lewis personally took charge of the supermarket’s day-to-day UK operations last month as part of a management shake-up in the wake of the accounting scandal that saw a wave of executives suspended.

Published: Thursday 8th January 2015 by The News Editor

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