On the money: Bullish Waitrose ready for battle
Price insisted Waitrose would invest to stay competitive
Upmarket UK grocer Waitrose has enjoyed another strong 12 months. Waitrose's reputation for quality has resonated in a polarised market, while the retailer has kept its eye on price with schemes such as brand match scheme targeting Tesco. Waitrose expects another solid year as the economy improves and is prepared to roll up its sleeves should Tesco sharpen its pricing pencil. Dean Best reports.
For the fifth straight year, Waitrose increased its share of the UK grocery market. In what have proved the most challenging trading conditions for at least a generation, Waitrose has been one of the sector's success stories.
The upmarket grocer's reputation for quality has attracted more affluent UK consumers, perhaps with incomes helped by record low interest rates. The retailer has attracted shoppers less keen to eat out but still looking to treat themselves. With Waitrose's stores still mostly in parts of the UK that have been less squeezed financially, the grocer has been more sheltered from the economic chill that has battered competitors. And Waitrose has cutely kept its eye on value, with its Essentials own-label range performing strongly and with initiatives like its matching of the prices Tesco charges for branded goods.
Waitrose booked a 6% increase in gross sales to GBP6.11bn (US$10.22bn) for the 52 weeks to 25 January - the first time the retailer had broken the GBP6bn mark.
Like-for-like sales grew 5.1%. Waitrose said a "large proportion" of the rise in like-for-likes was due to volume growth. Operating income climbed 6.1% to GBP310.1m.
Waitrose expects sales to rise at a similar rate in the new financial year. "We expect our sales to grow by broadly the same amount as this year, in the region of 7-8% and probably about half of that - 3-3.5% - to come from like-for-like growth," Waitrose MD Mark Price told reporters after the results were published.
There are signs, however, that UK grocers are sharpening their pricing pencils. All week, retailers have announced cuts to the price of milk, while last week Tesco said it would invest GBP200m more to drive down the prices of "essential" items.
Price said UK grocers were looking to revive flagging volumes but insisted Waitrose had the financial firepower to compete.
"There have been a fall in volumes over recent months for many of the grocers - not Waitrose I'm very pleased to say - so a number of them are taking on tactics to try and grow that volume again," he said.
"They may well invest some of their promotional money in a different way to try and move volume. Whatever happens, we're determined to use our very strong balance sheet to keep Waitrose competitive - we've worked hard to do that for a number of years now - and we aim to continue to keep Waitrose competitive on price."
The Waitrose boss pointed to the "success" of the retailer's myWaitrose loyalty card, which gives users promotional offers but also free hot drinks in-store (without a purchase being necessary) and free newspapers (after a minimum spend).
Price said 4.1m people had signed up to use the card. "That's clearly resonating with consumers as a different way of doing business. There is something about reinventing value for customers and I think Waitrose has been successful in doing that."
However, notably, Price indicated Waitrose was prepared to keep its operating margin of 5.4% steady to invest back into the business.
"Waitrose made an operating margin of 5.4%. That's what we made the year before. That compares very favourably to operating margins being made by other food retailers in the UK. We're not looking to grow our operating profit percentage much around where we are today. What we've decided to do is invest our hard-won profit back into a better, stronger offer for our customers and they've had the adv of free coffee, free newspapers, competitive pricing against Tesco and Sainsbury's," Price said. "What we'll continue to do is invest in giving our customers a great offer and make profits that are sustainable to the advantage of the business and our partners."
And Waitrose is also looking to invest in stores, not least in the UK's growing convenience channel.
Price today told just-food the upmarket UK grocer is set to accelerate the expansion of its network of Little Waitrose convenience stores.
The retailer has 42 Little Waitrose outlets and opened five more in the year to 25 January. Waitrose plans to increase the rate of openings in the year ahead and has signalled it will open 23 more.
after three years of hard trialling, we know where we can make money and we know which elements of the trial have been less successful," Price said. "That gives us the confidence to increase the speed of our roll out, which we are all very pleased about."
The convenience channel is an avenue of growth in a challenging UK grocery market and a number of the country's major food retailers are continuing to expand their networks of smaller stores.
Last month, Sainsbury's said it would open 60 new convenience stores in London and the South East over the next 12 months.
However, Price brushed off the suggestion that competition was behind Waitrose's decision to up the pace of its Little Waitrose expansion.
"No, we're a long-term business. It's about the right shops in the right place, rather than opening lots of shops," he said. "It's also a question of the pace at which this organisation can grow and remain true to its values. One of primary things we have to consider is what's the right pace of growth for us to maintain the partner and customer experience. In part, that's constrained by capital but more it's constrained by our ability to develop and grow the right kind of people to run our businesses."
Waitrose looks set fair for another solid year. Signs of improvement in the UK economy would work in its favour but the retailer is prepared to act on price, on promotions and on its store network to stay competitive.
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