Grocer wars could hit growth in stores: Profits at risk, battling supermarkets warned

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ESCALATING price wars among supermarket groups are likely to mean falling profits and could lead to a sharp drop in the number of new store openings, according to Verdict, the research consultancy.

In its annual report on grocers and supermarkets, Verdict says that the price of a basket of 40 products, using the cheapest brand available, fell by 13.8 per cent in the year to October.

It says that is not yet as severe as the price war instigated by Tesco in 1977, when it cut prices by 10 per cent. But it warns that in 1994 'grocers will increasingly respond to the challenges of food discounters and react to one another's initiatives'.

It adds: 'The problem with price-cutting is that if everyone does it then no one gains significant sales volumes enhancements until there is a major casualty.'

Clive Vaughan, who prepared the report for Verdict, said the likelihood of a collapse of one of the supermarket chains depended on how intense the pressure became.

'If it does not get more intense, there will not be casualties. But that is unlikely and the weaker players and stores will come under increasing pressure.' The report picks out Waitrose, owned by John Lewis, as vulnerable. Its stores are mainly in the South-east, where rivals with more sophisticated computer systems have been opening large numbers of stores. Waitrose is introducing scanning but 'there remains a great deal of catching up to do if Waitrose wants to be up with the best'.

It also cites Gateway - whose refinancing it rates as one of the events of the year - as likely to come under pressure.

While Gateway has been aggressive on pricing, rivals have reacted quickly and its smaller stores are more costly to run.

Verdict predicts that other supermarket groups will follow the lead of Argyll, Safeway's owner, in charging depreciation on the value of its stores.

It says that lower operating profits will raise questions about the valuation of supermarkets in company accounts and will also force supermarkets to reconsider the speed of their opening programmes.