British Grocers Prepare for Wal-Mart

Food retailers in Great Britain have begun slashing prices in preparation for the arrival of Wal-Mart Stores Inc. in late July.

The Bentonville-based retail giant purchased Asda Group PLC, Britain’s third-largest supermarket chain, for $10.8 billion. Wal-Mart is expected to take over Asda’s stores – 196 in England and 33 in Scotland – by early August.

In mid-July, Safeway PLC cut prices as its latest move in a string of promotions to hang onto customers.

Safeway, the smallest of the UK’s big four supermarkets, reported a slight improvement in first-quarter sales on July 13 but said life in general was getting harder.

Safeway CEO Colin Smith said competition has become more keen in the UK food retailing sector since Wal-Mart’s announcement in May that it would take over the Asda stores in Britain.

Stores are facing low sales-volume growth and low food-price inflation as well as increasing pressure on prices, he says.

“It’s bad for everyone out there,” Smith told Reuters, the British news agency.

Safeway managed to boost sales growth in recent weeks in line with the industry average – about 1 percent – and said it would create 3,500 new jobs this year largely from new store openings.

But Safeway is also cutting costs, including axing an unspecified number of management jobs, because of the intense competition, which industry experts say can only get worse once Wal-Mart completes its takeover of Asda.

British supermarket owners fear Wal-Mart will start a pricing war when it takes over the Asda stores. The UK has never been known as an a land of bargains.