Morrisons restructuring sparks fears of new price war

Supermarket chain Morrisons is to slash prices to compete with discount chains after reporting a £176m loss last year.

Chief executive Dalton Philips said: "The rules of the game have changed. There is a new price norm."

He said Morrisons' restructuring would target the market between discount chains and the "big four" retailers.

But fears of a price war between supermarkets and discounters wiped £2bn off the combined value of Tesco, Sainsbury and Morrisons shares.

Asda, the fourth of the "big four", is a subsidiary of US retailer Wal-Mart.

Morrisons was the worst performer on the FTSE 100 on Thursday. Its shares fell more than 10% at one point.

Morrison warned that profits in the coming year would be less than £375m, about half the level last year.

The company was hit by a one-off £903m exceptional writedown, due to property and IT costs and a disappointing performance from Kiddicare, its baby products business.

Restructuring

Mr Philips told the BBC how the firm would restructure: "This isn't about being a discounter. This is about offering really great value.

"There is a tipping point where the price perception gap has just widened too far between the discounters and the big four and we're going to address that.

"We have identified over a billion pounds that we can take out of our business now and that billion pounds is going to be invested back into our proposition to get those lower prices for our customers."

He said Morrisons would invest in increased efficiency, lower prices, more targeted promotions and a Morrisons loyalty card, so it could track the shopping habits of its customers.

But in a research note, independent analyst Louise Cooper said the company was still not doing enough: "Morrisons is only just catching up with the developments of five to 10 years ago - online, loyalty card, convenience etc - let alone the changes happening now. And there seems little urgency."

Morrisons suffered badly at Christmas, with a "double whammy" of voucher offers from the big four supermarkets and lower prices from the discounters.

Online

Morrisons' online business Morrisons.com has lagged behind the big four supermarkets.

Morrisons only started deliveries through online grocer Ocado in January after signing a £200m 25-year deal last year. The service covers 20% of UK households

The firm has also been slow to recognise the move from big out-of-town stores to local convenience stores. It opened 90 last year, and plans 100 new ones this year. Tesco has some 1,700 convenience stores in the UK.

It is planning to sell Kiddicare and its stake in New York-based food retailer Fresh Direct which it said were not core businesses.

Morrisons increased its dividend by 10%, but added that dividends would increase more slowly in coming years.