Tale of Two Big Stores Reveals Image is Crucial As Shoppers Count Pennies ; Cut-Price Shops See Big Upturn

By Russell Lynch

CONTRASTING figures from two major supermarkets have 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 more upmarket option- saw a 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 pounds 30m on promotions so far this year – such as largely insulating its customers from the rising 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.

“We want to make sure that our branded goods are price competitive in themarket place,” Mr Price added. Rising food prices – which have helped send inflation to more than double official targets-should ease in the coming months due to a combination of a good summer vegetable 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 pounds 94m in the first half of the year, in contrast with a 19% rise to pounds 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. He said: “To have grown like for like sales by 7.6% in this economic climate is a clear testament to the strength of Morrisons’ recovery.

“More shoppers are choosing Morrisons because of our price- crunching deals and our unrivalled fresh offer in store.”

Competition between supermarkets has been particularly keen in recent months as consumers are more driven by price as a result of the credit crunch and rising household bills. This shift has particularly benefited value retailers such as Aldi and Lidl.

Aldi’s managing director Pat Foley has described the credit crunch as “an opportunity”.

Aldi’s sales have increased 20%, and earlier this year unveiled plans to spend pounds 1.5bn on a five-year UK expansion plan to open one new store every week.

Shoppers have also been switching from famous brand names to supermarket own-brand goods in an effort to make their money go further. Earlier this month Sainsbury’s revealed sales of its own- brand products were growing at twice the pace of sales of branded products.

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