June 15, 2018 / 6:29 AM / 10 months ago

UPDATE 2-Tesco steps up challenge to rivals with new price cuts

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By James Davey

LONDON, June 15 (Reuters) - Tesco said a drive to lower prices for customers had boosted its quarterly sales, in an ominous warning for rivals three years after Britain's biggest retailer embarked on a turnaround programme.

Tesco, which was forced to rebuild after a 2014 accounting scandal capped a downturn in trading, said a move to lower prices on fresh food brands towards the end of its first quarter reflected a growing confidence in its performance.

The lower prices, plus a relaunch of its own-brand products, helped the group to counter adverse weather and post first-quarter underlying sales in its home market up 2.1 percent, in line with forecasts.

"Our growth plans are on track and we are pleased with the momentum in the business," Chief Executive Dave Lewis said. "We remain well-placed to serve our customers better and deliver on our medium-term financial ambitions."

The lower prices are likely to be welcomed by customers in Britain where a string of retailers have struggled in a tough market.

Britain's supermarket sector has been upended in recent years by the rapid growth of discount groups Aldi and Lidl and the growing popularity of online sales, forcing traditional groups Tesco, Sainsbury's, Walmart's Asda and Morrisons to work harder.

As part of Tesco's recovery it has bought wholesaler Booker for 4 billion pounds ($5.3 billion) to expand into supplying restaurants, cafes and local shops. Now it is having to confront the prospect of a larger competitor after Sainsbury's announced a deal to buy Asda.

Tesco currently dominates Britain's supermarket sector by a clear margin, with a 27.7 percent market share, according to industry data.

However, Sainsbury's' proposed 7.3 billion pounds takeover of Walmart's Asda would push Tesco down into second place, posing a serious threat to the group.

Tesco added that its growth plans were on track and it was delighted with initial progress at Booker which posted a rise in like-for-like sales of 14.3 percent, including tobacco.

As a group, it posted underlying growth of 1.8 percent, its strongest performance since 2011. ($1 = 0.7557 pounds) (Writing by Kate Holton; editing by Guy Faulconbridge)

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