Ocado, the grocery home-shopping business part-owned by John Lewis, is launching a price war against Tesco, despite losses of nearly £300 million since its launch eight years ago.

Ocado has vowed to match prices with Britain's most powerful and profitable retailer on 3,500 branded products - from Pampers to Coca-Cola - in the hope that it can attract thousands more customers over the coming months.

Tim Steiner, the chief executive of Ocado, said: “We have a reputation for superior service and excellent quality, but we have been perceived as too expensive and out of the reach of many households. From Wednesday, that will no longer be the case.”

The move surprised industry experts and brought a wry response from Tesco. Sir Terry Leahy, the chief executive of Tesco, once described Ocado as a charity, given the time that it has taken the business, set up by three former Goldman Sachs bankers, to break into the black.

A Tesco spokesman said yesterday: “It's good to see that Ocado regards Tesco's low prices as a benchmark.”

It is thought that Ocado will have to invest about £10 million to keep its price pledge. The group, which supplies Waitrose food and drink alongside everyday branded products, claims to be making a profit at an operating level but is thought to have made a pre-tax loss of £30 million in 2007. Tesco posted a pre-tax profit of £2.6 billion last year.

Richard Hyman, managing director of Verdict, the retail consultancy, said: “Whether it's suicidal or not is hard to say, but this could potentially be quite damaging for Ocado. "People aren't going to switch to Ocado because they have Fairy Liquid at a lower price. If you're worried about price, you'd go to Tesco. I think it's a very bold move.”

Ocado has built up a loyal customer base in the South of England through its partnership with the John Lewis-owned Waitrose and a focus on having the best customer service in the market. It claims to hold a 50 per cent share of the lucrative grocery home-shopping market in London.

Its founders - Tim Steiner, Jason Gissing and Jonathan Faiman - have invested heavily in a state-of-the-art, automated warehouse in Hatfield, Hertfordshire, with the help of investors such as John Lewis and Jorn Rausing, the Tetra Pak billionaire.

Mr Gissing said yesterday that the price-match campaign was designed to change the perception of Ocado as an expensive retailer. He said: “We thought the best way to demonstrate clear, transparent price competitiveness is to match Tesco prices for all branded goods stuff we sell. It will cost several million pounds, but we can absolutely afford it.

“The business is flying and customers have told us if they can buy Pampers from us at Tesco prices and Waitrose ready meals at Waitrose prices, then we have a shop they will truly love.”

Mr Gissing added that Ocado regarded Tesco's consistent sniping as a badge of honour. He said: “I remember Richard Branson saying that when he was being targeted by British Airways he was terrified but thought, 'I must be doing something right.'

“Tesco is the biggest and the best, but when they say things like ‘Don't shop at Ocado, shop at Tesco', you think: ‘OK, I'm having my BA moment here'. When your largest competitor is focusing on you, you think: ‘I'm on to something here.'”

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