As sales and profits at the big four sank in 2014, upmarket Waitrose managed to keep its head above water. But its annual results next week are expected to show the supermarket is increasingly being dragged down into the price war.
Waitrose’s weekly sales updates show its sales were up 5.7% in the second half. Once the contribution of new stores is stripped out that represents like-for-like growth of 1.5%- reasonable growth at a time when rivals Tesco, Morrisons, Sainsbury’s and Asda have seen sharp like-for-like sales declines.
But it’s the bottom line that’s been most impacted, according to analysts. Independent retail expert Nick Bubb expects full year operating profits to fall by over 20% to £240m-£245m from £310m last year. That would represent a marked deterioration in the second half, after it posted a 9.4% fall in first half profits to £145.2m.
And it’s getting worse: sales updates since the its financial year-end (31 January) show total sales (excluding petrol) for the first three weeks of the year to 21 February are up just 0.2%, which represents a like-for-like sales decline of 4%.
One senior retail source put the Waitrose decline down to its commitment to match Tesco’s prices, claiming it is “no longer in charge of its own price file”, as Tesco has made fewer but deeper price cuts in the new year.
Last week The Grocer revealed Waitrose failed to match over one third of the price cuts introduced by Tesco at the start of the year. The supermarket said doing so would break GSCOP rules and its commitment not to sell alcohol “below cost” (based on its own definition), but Sentinel Management Consultants CEO David Sables wondered if it was seeking to protect margin at the end of its financial year. “Waitrose would not have wanted to lose a considerable chunk of year-end profit by investing its own margin just three weeks before its year end with no time to recoup the investment,” he argued.
At its half year results in September, CEO Mark Price defended Waitrose’s decision to price match against Tesco and Sainsbury’s, reaffirming: “We have an absolute commitment to remain price competitive”.
Shore Capital analyst Clive Black is also anticipating a decline in profits next week: “As we’ve seen this week with Tesco cutting the price of butter and tiger bread, there is a lot going on at the moment that may involve considerable margin investment. So, we would expect Waitrose’s operating profits to be slipping back year on year.”
Black added: “Tesco’s rejuvenation is likely to be taking a little bit off everyone, Waitrose included, and I do also sense that the discounters probably nibble more these days too.”
Price has dismissed the notion that Waitrose customers were shifting to Aldi, but the senior retail source noted that the discounters have begun to actively target Waitrose customers through “aggressive leafleting”.
Waitrose’s sales are also under pressure from food price deflation. Last month The Grocer Price Index recorded record annual deflation of 1.7% in the month to 1 February.
Waitrose is also up against tough year-on-year comparatives.
Waitrose declined to comment for this article, but noted in a recent weekly update that “topline performance was impacted by a period of major promotional activity this time last year”. The supermarket is keen to draw comparisons with sales of two years ago, noting total sales are up 5.7% on total sales in the same period in 2013.
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