Supermarkets face a decade of turmoil warns Waitrose boss

Graham Ruddick
Telegraph UK
John Lewis bonus could remain under pressure after falling to lowest level in 12 years as Waitrose battles drama in the grocery industry
The John Lewis Partnership has cut its bonus to the lowest level for 12 years after the pressure on the grocery industry took its toll on Waitrose.
Mark Price, the boss of Waitrose, warned that it could take a “decade” for the challenges in the sector to be resolved, raising the prospect that the treasured bonus could be under pressure for some time.
Referring to a famous Winston Churchill quote, Mr Price said of the upheaval in the industry: “This is not the end. It is not the beginning of the end. This is the end of the beginning.”
The John Lewis Partnership cut its bonus for the second consecutive year, reducing it to 11pc of annual staff salaries from 15pc last year. The payout is worth £156.2m and roughly eight weeks pay for the organisation’s staff.
The partnership is made up of 93,800 staff who between them own John Lewis and Waitrose. The bonus is decided by the board of the organisation, which is led by the chairman, Sir Charlie Mayfield. It is determined based on the profits of the business – with 45pc to 50pc of profits traditionally paid out as a bonus – and the outlook.
For the year to January 3, pre-tax profits before exceptional items were £343m, down 9pc on the previous year, or 10.5pc excluding the extra week of trading that fell into the latest year.
This decline was driven by a 23.4pc drop in operating profits for Waitrose. The upmarket grocer grew like-for-like sales by 1.4pc during the year and gained market share, which the “big four”, Tesco, Asda, J Sainsbury and Wm Morrison, failed to do.
However, this came at the cost of profits. Waitrose profits were reduced by a £40m hit from deflation due to the price war in the industry and commodity prices falling, as well as £30m of investment into store revamps and IT, and £27m of one-off costs including a £19m impairment on the value of the property.
The pressure on Waitrose has continued in the new financial year, with like-for-like sales down by 2.8pc in the first five weeks. Mr Price said this decline was due to the retailer aggressively trying to expand its online business in the same period last year with a series of offers, including offering free champagne with orders.
The Waitrose boss said he expected the grocery retailer, the sixth biggest in the country by market share, to return to like-for-like growth as the year goes on. However, he said the changes in the supermarket sector were “dramatic” and the “biggest challenge” in his 34-year career.
The grocery retailers are battling against shoppers moving away from one weekly shop in an out-of-town store to a series of smaller shops across different forms of retail, including convenience stores and online. Prices are falling as the retailers fight to attract shoppers by cutting their prices, but also because key commodities such as oil have fallen in value.
Waitrose sells food online through its own website and Ocado. Mr Price confirmed that Waitrose has “no intention” of activating a break clause in its contract with Ocado that comes into force in 2017.
While Waitrose reported a fall in profits, John Lewis, the department store chain, said operating profits before exceptional items rose 10.8pc to £250m, larger than the £237m posted by Waitrose. Like-for-like sales for John Lewis shops rose 0.6pc, with online sales up 21.6pc.