A year after owners Walmart made aggressive investments in price that helped sow the seeds of the market share shake-up reported this week, Asda’s price lead over Tesco has halved.

The price cuts made in the run-up to Asda’s launch of the 10% Price Guarantee a year ago opened up a price gap with Tesco of 11.7% in January 2011.

With no repeat of that price offensive by Asda last month, the gap between Britain’s two biggest supermarkets has now narrowed to just 6.4%, after promotions are taken into account, according to The Grocer Price Index [52w/e 31 January, The Grocer/BrandView.co.uk].

Asda’s post-promotion prices rose 9% year-on-year versus 4% at Tesco, 3% at Sainsbury’s and 7% at Morrisons.

Of course, Asda still has room to manoeuvre on price. The supermarket remains significantly cheaper than its rivals and, more importantly, it has convinced shoppers of this, as its share of the grocery market increased from 16.9% a year ago to 17.5%, according to Kantar Worldpanel figures published this week. Meanwhile, over the same period, Tesco has seen its market share drop from 30.5% to 29.9% - its lowest share for seven years.

Wholesale prices: dairy & eggs

The EU ban on battery cages has been sending egg prices skywards recently, so it is little surprise to see egg products continue to post big year-on-year rises. Shell eggs for processing are currently leading the way, having shot up 88.4% year-on-year to £852.6/tonne, closely followed by UK shell eggs, which are up 73.3% to £1,120/tonne.

However, price rises look as though they might be slowing down. Month-on-month, eggs for processing are actually down 2.5% and UK shell egg and liquid egg white prices have stabilised. Although egg yolk powder has continued to climb, it has done so at about half the year-on-year rate.

Meanwhile, on the dairy side, milk prices have remained high despite a rise in milk production, with Cheddar also holding firm. Whey prices have risen by 10% year-on-year and are currently up 2.6% month-on-month, in response to limited availability and high global demand.

The September launch of Tesco’s Big Price Drop has yet to persuade Asda converts to return to the supermarket, it seems. However, the campaign has at least started to live up to its mission of keeping a lid on food price inflation before deals come into the equation. Annual base price increases at Tesco (3%) were lower than at Asda (7%), Morrisons (5%) and Waitrose (4%) and were level with Sainsbury’s (3%).

The picture month-on-month reflects both continuing inflationary pressures and a return to normality after promotions kept prices artifically low over the busy Christmas trading period.

Across the big four, prices were up 3.6% post-promotion - the only supermarket to keep a real lid on inflation was Waitrose, up 1.3%. And the difference here doesn’t just reflect the fact Waitrose runs fewer promotions. It was the only supermarket chain to actually cut its base prices in January - by 0.5%. But Tesco (1.3%) and Morrisons (1%) also kept base prices firmly in check, while Asda’s increased by 3.1% month-on-month (Sainsbury’s base prices rose 1.6%).

In terms of categories, alcohol prices rose by 11.8% last month after prices were cut by 5% in December. (The exception was once again Waitrose, as it cut base prices by 2.5%.) Prices for health and beauty products and frozen food also rose substantially - by 4.4% and 4.2% respectively.

Only foodies escaped the price hikes unscathed. Delicatessen product prices fell by 5.5% month-on-month across the big four supermarkets. And if you wanted a cheaper shop than the month before, only Waitrose shoppers would have been happy. Go figure!