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The cut-throat competition between the major retailers has reached a new high. Gil Unger, CEO of Blue Square, told Haaretz yesterday that he intends to start a price war over such basic commodities. "We are going to drive the market crazy at every step," Unger said. "We're also going to get to the refrigerated shelves and the bread section."

A considerable part of the bread and milk sector is controled by state-regulated pricing. Retailers from the major chains to small grocers make no profit on these goods. So a price war on these foods means that Blue Square would be running these products as loss-leaders. As basic food products, they would become the magnet that draws the customers into the stores. Such an aggressive pricing policy, though, is considered dangerous and could certainly harm smaller, privately run grocery stores.

The first shot in the battle for the public's purse had already been fired. Blue Square's Mega chain launched an aggressive policy last weekend on diapers, aiming to attract young families, with children, to its outlets.

For the Mega chain, this is a foray into new ground. Clubmarket has taken the bargain price route through its new Impiria chain, while Supersol has its recently launched Supersol Deal. Now, apparently, Mega is ready to take the plunge. Before the weekend, the stores cut prices to unheard of lows: Pampers and Huggies disposable diapers were reduced to NIS 39.99; Similac baby formula cut to NIS 24.99 and Materna Premium formula to NIS 39.99.

How much of a reduction do these prices represent? The recommended retail price for Huggies diapers is NIS 69, although they are sold at Supersol Deal stores at NIS 53, and at Impiria for NIS 59. Mega's offer undercuts them by 25-33 percent.

But there is a catch. Mega's offer is conditional on the customer spending at least NIS 100 in the store.

The tactic notched up a considerable response. Mega reports that some 30,000 disposable diaper packages were sold in a four-day period.

According to sources in the industry, the product is sold to the retailer at NIS 54 (without VAT), and so it makes a NIS 20 loss with each sale. Mega's policy is again setting loss-leaders to bring in the punters.

Market analysts believe that even with the NIS 100 minimum purchase, the store cannot make up the difference, and the unprecedented offer will not bring in more sales.

But the cat is out the bag, and no player in the retail trade is free of the knock-on effect: Yesterday Superpharm announced it was cutting the price of Pampers and Huggies diapers to NIS 50, to guarantee its place in the retail wars. The store added that its reduction was permanent, and not a one-off bargain.