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Morrison Escalates U.K. Grocery Battle With New Price Cuts

May 1 (Bloomberg) -- Wm Morrison Supermarkets Plc stepped up the battle against discounters and its larger U.K. supermarket competitors by cutting prices on 1,200 products from fruit scones to baby wipes.

Prices on the items will be reduced by an average of 17 percent starting today, the Bradford, England-based grocer said in a statement, the second round of cuts since Morrison said on March 13 that the strategy will cause profit to plunge.

“This is a defensive and an offensive play,” Morrison Chief Executive Officer Dalton Philips said at an embargoed briefing yesterday. While the grocer may not be able to match discounters Aldi and Lidl on every item, “our competitive pricing, the quality of the fresh food we make ourselves and the level of service will be a compelling proposition.”

Aldi and Lidl, both based in Germany, are increasing their share of U.K. supermarket spending as their low prices and improving product quality win favor with shoppers. Morrison’s biggest domestic competitors Tesco Plc and Wal-Mart Stores Inc.’s Asda have responded by reducing prices.

“Moving a lot closer to the food discounters would appear to be the net impact of today’s announcement,” James Grzinic, an analyst at Jefferies International, said in a note. 

Morrison shares were unchanged at 200.9 pence as of 8:38 a.m. in London. They have slumped 23 percent this year, dropping 12 percent on March 13 when the grocer said annual profit will slide because of the plan for cheaper prices.

‘Strong Support’

Today’s price cuts, including a 60 percent reduction in the cost of a pack of Huggies wipes to 1 pound ($1.69), mean that same-store sales “are unlikely to improve any time soon,” Philips said. “Our lower prices automatically and inevitably reduce the actual sales going through the till.”

Asked if shareholders were supportive of the price cuts, Philips said he received “really strong support” for the strategy at recent meetings with investors.

The price cuts will be supported from today by a television advertising campaign under the strapline “I’m Your New Cheaper Morrisons,” according to the company.

Philips also said he expects Morrison’s new online business and the embryonic convenience-store unit to contribute 500 million pounds to annual sales by the end of the year. The retailer had revenue of 17.7 billion pounds last year.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis, David Risser

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