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PRICE WARS ARE HEATING UP

LONDON (FNS) -- The battle among leading U.K. food retailers is heating up as British consumers become more price-conscious.Analysts predict retail margins will come under increasing pressure here over the next several years.All the major chains have announced programs to cut or maintain their prices over the last few months. Industry executives admit the 1990s will be a period of decreasing margins

LONDON (FNS) -- The battle among leading U.K. food retailers is heating up as British consumers become more price-conscious.

Analysts predict retail margins will come under increasing pressure here over the next several years.

All the major chains have announced programs to cut or maintain their prices over the last few months. Industry executives admit the 1990s will be a period of decreasing margins but they hope to limit the damage to their profits by increasing volumes through keener pricing strategies.

"The situation now is more like a price war than at any time since the '70s," said David Shriver, a food retail analyst at County NatWest. "It is the first time in 10 years that margins are trending downwards and it is difficult to see where they will finish up."

Analysts predict the average margin decline should be about 0.2 or 0.3 percentage points from their current level of 6% to 8%. The price-cutting programs of the major chains may be aimed as much at spurring a shakeout of the food retail market as they are at blunting the competition from discounters and clubs, analysts said. There are several weak chains -- such as Gateway, Wm. Morrison and Waitrose -- that have been struggling to maintain market share as the largest chains have expanded. The lower-margin environment of the 1990s finally may force a consolidation of the market, analysts predicted. The first chain to announce price cuts was Gateway, the U.K.'s fifth-largest food retailer, which is struggling to carve a new niche in the market. Its Price Check program stirred Asda, the fourth-largest chain, to relaunch its Asda Price promotion offering everyday low prices. Then last fall, Tesco introduced a third-tier line of 70 products called Tesco Value, which it said was aimed at sharpening its pricing in comparison with the growing number of discount chains in the United Kingdom. But analysts said the true indication a price battle was brewing was the decision of J. Sainsbury, the United Kingdom's largest food retailer, to cut prices on 300 of its own-label products. The program, called Essential for the Essentials, covers products that represent about 10% of the group's sales. As part of the move, Sainsbury withdrew a range of about 100 second-tier products. David Sainsbury, the group's chairman, said the price-cutting campaign will set the pattern for Sainsbury's future trading. He denied it resulted from the arrival of warehouse clubs in the United Kingdom or the growth of discount chains. He said increasing consumer awareness of price is a result of the uncertain economic environment. "But that doesn't mean the trend will continue throughout the '90s," Sainsbury warned.