UK's Waitrose not immune to the rise of discounters

SWINDON, England Fri May 2, 2014 1:39pm EDT

SWINDON, England May 2 (Reuters) - Upmarket British grocer Waitrose is having to deal with a knock-on impact from the rapid rise of discount chains Aldi and Lidl, as it is forced to respond to price cuts taken by the country's big four supermarkets to combat them, it said on Friday.

British consumers are shopping around to save money and are wasting less, shying away from big weekly shops and buying little and often in local convenience stores or online.

The grocery market is polarising with the big four - market leader Tesco, Sainsbury's, Wal-Mart's Asda and Morrisons - being squeezed between German discounters Aldi and Lidl and upmarket players Waitrose and Marks & Spencer.

Tesco, Asda and Morrisons have been cutting prices to try to combat the discounters, with Morrisons firing the latest salvo on Thursday with reductions averaging 17 percent on 1,200 products.

Analysts have expressed concern about a possible contagion of price cuts hitting margins and earnings across the industry.

"We're not losing any of our gold customers to Aldi or Lidl. There's a tiny bit of migration from our silver and bronze - you're talking about a couple of million tops," said Waitrose Managing Director Mark Price, signalling those customers might occasionally also shop at the discounters.

"It is more about how we respond to Sainsbury's and Tesco in terms of what they do with pricing," he said on a media and analyst visit to a new Waitrose store in Swindon, south west England.

He noted that Waitrose, part of the employee-owned John Lewis Partnership, matches Tesco prices on 8,500 branded lines through its "Brand Price Match" scheme and kept a close eye on own-label pricing at both Tesco and Sainsbury's, recently joining in with industry-wide cuts on basic products such as milk and butter.

It also differentiated its offer with initiatives like free coffee and tea and newspapers for holders of its loyalty card.

"What we will make sure is that on key value items Waitrose continues to be price competitive ... Thankfully we've got a great margin to play with so we feel that we're in a pretty resilient position in terms of what people do," he said.

Waitrose's strategy was working, said Price, evidenced by a 6.5 percent rise in first-quarter sales, reported earlier on Friday.

After Aldi and Lidl, the over 300-store Waitrose is the UK's fastest-growing grocer and, according to market researcher Kantar Worldpanel, currently has a record market share of 5 percent, making it the country's sixth largest.

"We're going to be everything that the discounters aren't," said Price.

He highlighted the discounters' limited product range - 1,500 lines versus nearly 25,000 at Waitrose and initiatives being showcased at the Swindon store, such as new bakery and patisserie counters, juice bars, deli and wine-tasting areas.

The store is also doing trials on new technology, including smartphone product scanning and payment.

"We have embraced technology, both in terms of what it can do to drive the efficiency of our operation but also how it can improve the customer experience. Again something that discounters are never going to do," added Price. (Editing by Mark Potter)