Asda, Morrisons Cut Prices Of Key Items Amid British Spending Squeeze

Asda and Morrisons said on Monday that they would cut the prices of essential items, ratcheting-up competition in Britain's food retail sector against a backdrop of soaring inflation and slumping consumer confidence.

Surging prices are causing the biggest squeeze on household incomes since at least the 1950s in Britain, where grocery price inflation hit 5.2% over the four weeks to March 20, the highest level since April 2012, industry data last month showed.

Almost a quarter of people in Britain found it difficult to pay their household bills even before hikes in regulated energy prices took effect, an official survey showed.

Supermarket groups typically try to keep down the prices of so-called known value goods, of which shoppers instinctively know the cost, while pushing up the prices of others.

Asda, Britain's third largest grocer after market leader Tesco and Sainsbury's, said it would invest over 73 million pounds ($93 million) to cut the prices of over 100 items, including fruit and vegetables, meat and rice, and has "locked in" those prices until the end of 2022.

The group, owned since February last year by brothers Mohsin and Zuber Issa and private equity company TDR Capital, said that on average, prices for the 100 items will drop by 12%.

Meanwhile Morrisons, the fourth biggest player, said it was lowering prices on more than 500 essential products, which together cover 6% of its total volume sales.

Morrisons, owned since October by U.S. private equity firm Clayton, Dubilier & Rice, said its price cuts were in items such as eggs, baked beans, coffee, cereals, chicken, sausages and nappies. It said the average saving was 13%.

Shares in Tesco were down 0.7% at 0902 GMT, while Sainsbury's was down 1.4%.

'COMPARE AND SAVE'

Morrisons has also introduced new "multi save" promotions, such as two boxes of cereal for 1.8 pounds and a "Compare & Save" campaign to help identify savings that can be made by swapping branded items for its own products.

Monthly industry data has shown Asda and Morrisons consistently lagging Tesco and Sainsbury's, which both price match German-owned discounter Aldi on essential items.

However, earlier this month Tesco warned of a drop in profits this financial year.

Sainsbury's will report annual results on Thursday.

Britain's overall inflation rate hit a 30-year high of 7% in March and is expected to peak at nearly 9% later this year.

A survey published on Friday showed UK consumer confidence slumped to its lowest level since records began nearly 50 years ago.

Asda also said it was increasing the pay of its 120,000 shop floor workers to 10.10 pounds per hour from July, as well as giving them a bonus opportunity.

Also on Monday, convenience store group McColl's, with whom Morrisons has a wholesale supply agreement, warned on profit after a poor Easter and said a refinancing of the business could wipe out the value of its equity.

McColl's shares slumped 50%.

($1 = 0.7790 pounds)