Tale of two stores in search of more sales

Sep 12 2008 by Peter McCusker, The Journal

CONTRASTING figures from two major supermarkets revealed the current pressure on the sector as hard-pressed shoppers look to slash food bills.

Morrisons, the UK’s fourth biggest chain, said demand for cheaper value ranges had driven comparative sales 7.6% higher in the six months to August.

Fierce price-cutting and promotions – including slashing a host of everyday items to 50p – tempted in around half a million extra customers a week.

But at the same time Waitrose, seen as the dearer upmarket option, saw a much more sluggish 2.5% rise over the same period.

And in the weeks since the end of July, like-for-like sales have gone into reverse across its 192 stores – down 1.1% – as shoppers turned to cheaper alternatives.

The falls come despite Waitrose investing £30m on promotions so far this year, such as largely insulating its customers from rising meat prices of beef and lamb.

This drive will continue as the group seeks to “improve price perception” and draw in more customers.

“There is a misconception about how competitive Waitrose really is on price,” managing director Mark Price said.

Waitrose has a strong reputation for high-quality food but Mr Price claims that on five out of 25 product categories, Waitrose actually has cheaper entry prices than discount retailer Aldi.

As well as promotions, Waitrose is stepping up efforts to let customers in its stores know when items are the same price or cheaper than at rivals Tesco, Sainsbury’s and Marks & Spencer.

Rising food prices, which has helped send inflation to more than double official targets, should ease in the coming months due to a combination of a good summer vege- table harvest and a good global wheat harvest.

This should see price reductions on some products and a levelling off on others, Mr Price added.

But Waitrose’s operating profits fell 10% to £94m in the first half of the year, in contrast with a 19% rise to £295m for Morrisons.

Morrisons said that as of the end of July, the cost of crude oil was 66% above a year earlier, wheat up 23% and rice prices had more than doubled.

Although the fierce competition between supermarkets meant it could not pass on all increases to customers, the group remains on track to hit profit targets this year despite the toughest trading environment for years.

“We fully expect the second half to be highly competitive as disposable incomes come under further pressure, and we will continue to use our sales momentum to fund price investment and maintain a strong competitive position,” the group said.

But chief executive Marc Bolland welcomed the sales boost as a further step in the turnaround of the Bradford-based group from its troubled takeover of Safeway in 2004.

John Lewis woes

THE John Lewis Partnership says its department stores had borne the brunt of the housing market’s woes as first-half profits fell by more than a quarter.

The group’s John Lewis chain saw like-for-like sales fall 1% in the six months to July 26, with home goods down 5%.

The partnership, which also owns the Waitrose supermarket chain, said overall pre-tax profits had slipped 27% to £108m.

Chairman Charlie Mayfield expects the rest of the year to be challenging and is cautious about the consumer outlook until the end of 2009.

'Difficult' times

THE owner of Argos and DIY chain Homebase has announced heavy sales falls for both businesses

Home Retail Group said Argos like-for-like sales were 5.8% lower in the second quarter of its financial year, covering the 13 weeks to August 30.

That compares with the flat performance seen in the previous quarter.

And Homebase same-store sales dived 8.3%, although this was better than the 12% fall reported for the first quarter.

Boss Terry Duddy said the performances reflected a difficult consumer environment.

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