Britain's Asda to spend further 500 million sterling on price cuts

A sign is seen outside an Asda store in northwest London, Britain August 18, 2015. REUTERS/Suzanne Plunkett

LONDON (Reuters) - Asda, the British supermarket arm of U.S. retailer Wal-Mart WMT.N, will spend a further 500 million pounds cutting prices, it said on Sunday, firing 2016's first shot in a price war that has raged for two years.

All of Britain's "big four" supermarket chains -- market leader Tesco TSCO.L, Sainsbury's SBRY.L, Asda and Morrisons MRW.L -- have been cutting prices in an attempt to turn the tide after losing customers to discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL].

Asda, which had been the first to move, said the 500 million pounds is in addition to its previously announced price cuts. It said in November 2013 that it would spend 1 billion pounds on cuts over five years.

“We must take radical action to win back our customers,” Chief Executive Andy Clarke said, pointing to a lack of growth in the market and the rise of the discounters.

“We expect that 2016 will be another year of intense pressure at a macroeconomic level in addition to sales remaining under strain from price deflation, a continued competitive background throughout the sector and radically changing customer shopping habits.”

Asda was the worst performer by sales among Britain’s leading supermarkets last year, with management choosing to protect profit margins rather than chase sales.

The company reported like-for-like sales down 4.5 percent year on year in its third quarter after a record 4.7 percent decline in the previous three months. It is due to provide an update on fourth-quarter trading on Feb. 18..

Tesco, Sainsbury’s and Morrisons will all report on Christmas trading this week.

Asda also said on Sunday that it will soon become a member of European Marketing Distribution (EMD), a buying alliance with combined turnover of 178 billion euros (£133.6 billion).

Reporting by James Davey and David Milliken; Editing by James Dalgleish and David Goodman