Tesco Puts Brakes on U.S. Rollout

LONDON (Reuters UK) - Tesco (TSCO), the nation's No.1 retailer, announced a new low-cost range of products and price cuts on Wednesday, as it fights back against budget supermarket rivals that have eaten into its market share.

Tesco said the new range of 350 goods, called Discount Brands at Tesco, would span tea bags, biscuits, shampoos and washing up liquid, and was its biggest package of money-saving measures since the launch of its Value range 15 years ago.

It also pledged to invest more than 100 million pounds in cutting prices of "hundreds" of existing Tesco and branded products.

The move comes hours after arch-rival Asda, which is owned by U.S. group Wal-Mart Stores (WMT), announced plans to cut prices on more than 5,000 goods this autumn and escalates the battle between Britain's top grocers as they seek to gain a greater share of cash-strapped shoppers' purses.

Britons are curbing spending amid rising food and fuel costs, sliding house prices and mounting economic gloom, and growing numbers have been switching to shop at cheaper outlets.

Researchers TNS Worldpanel said on Tuesday that budget-focused Asda reached its highest ever UK grocery market share of 17.3 percent in the 12 weeks to September 7, while discount group Aldi achieved its best ever sales growth of 20.8 percent.

Tesco, meanwhile, grew at 6.7 percent, just below the market rate of 7.3 percent, and saw its market share dip to 31.5 percent from 31.7 percent a year ago.

"As customers tighten their belts in hard times, they tend to shop around for the best prices," Tesco Commercial Director Richard Brasher said in a statement. "Our research shows just how keenly they are feeling the need to watch their budgets."

J Sainsbury (SBRY), the No.3 supermarket group, announced a "Switch and Save" drive earlier this month in a bid to persuade shoppers to switch to its own-brand products, while No.4 Wm Morrison Supermarkets Plc (MRW) said last week it was cutting prices on 4,000 products this month.

Shore Capital analyst Clive Black said the latest moves by Tesco and Asda were another turn of the screw in the competitive environment between supermarkets but that because they appeared to be planned measures they were unlikely to hit profit margins.

"However, the leading two players' activities do pose greater challenges for the competition; especially the higher-category players Sainsbury and Marks & Spencer (MKS)," he said in a research note.

At 11:00 a.m., Tesco shares were up 0.7 percent at 361.2 pence. Sainsbury was up 2.3 percent at 362 pence, Morrison up 1.6 percent at 250.5 pence and Marks & Spencer up 1.5 percent at 239 pence.

(Reporting by Mark Potter; Editing by Louise Ireland)