The scale of the reductions - over£30 million more than the Wal-Mart-owned chain invested in price in the equivalent period last year - heralds intensifying competition as leading general retailers emerge from a lacklustre Christmas. Next, Woolworths and House of Fraser all reported tough business conditions at the start of the week.
Asda's initiative comes only a week after Tesco announced£80 million of price cuts, and in the wake of a CBI survey revealing that pre-Christmas discounting was likely to have driven sales volumes at the expense of value and profitability. The grocery giants' latest price campaigns place intense pressure on other store groups to cut prices, at a time when price deflation is already a concern.
Retail Knowledge Bank research director Robert Clark said: 'Price deflation has hit general retailers and can be expected to continue. There is also consumer uncertainty about a possible hike in interest rates. It will be dog eat dog in the first half of the year.'
One analyst said price deflation would continue to affect middle-market players such as Woolworths, Marks & Spencer and Boots. However, he said many smaller, specialist retailers with differentiated offers were insulated against deflation and could demand higher prices. 'We are seeing a mild slowdown in sales. The effect of price deflation and new space is having a much bigger impact than the fall in demand. Volumes are still rising,' he added.
Superdrug chief operating officer Euan Sutherland said it was a fairly tough Christmas for all retailers, but was relatively pleased with the health and beauty retailer's performance. However, he predicted 2005 would not be easy. 'Price deflation is critical. There is a lot of pressure to get your prices and costs down. I think it will be a very competitive marketplace in 2005 across all sectors,' he said.
As part of its cuts, Asda is investing£17 million in reducing prices on healthy products, including big brands such as Evian and Weight Watchers. The grocer has more than doubled its Good For You healthy eating range to 550 lines. It has also reformulated its value Smartprice range to decrease levels of fat, sugar and salt. The grocer will back its health push via a£7 million ad campaign.
Asda enjoyed a record Christmas period, with 38 of its stores generating£2.5 million in sales in the seven days to December 25, compared with 22 that hit that mark last year.
For more on Christmas trading, see this week's issue of Retail Week tomorrow.