LONDON (Reuters) - Britain's John Lewis Partnership [JLP.UL] said its upmarket chain Waitrose had not been immune to the supermarket price war, resulting in a 9 percent fall in underlying profit and forcing it to cut its staff bonus for a second year.
The 150-year-old employee-owned group, which runs Britain's biggest department store chain and its sixth-largest supermarket, said Waitrose operating profit slumped 23.4 percent due to brutally competitive market conditions and higher investment costs.
Group Chairman Charlie Mayfield said returns in the grocery sector would be materially lower for quite a long time.
Waitrose has outperformed larger rivals Tesco (TSCO.L), Sainsbury's (SBRY.L) and Morrisons (MRW.L) in recent years, and it grew total sales for the year by 6.5 percent to 6.51 billion pounds, securing it a record 5.4 percent grocery market share, according to research firm Kantar Worldpanel.
But increased price competition, and deflation in some food categories, resulted in like-for-like sales falling 2.8 percent in the first five weeks of the current year.
Mayfield said Waitrose stood out in terms of the shopping experience - with free coffee for loyalty card holders for example - and product quality. But it also had price and promotions in its arsenal.
"The way retailers balance their investment across price and promotions will one of the key battlegrounds," he said in an interview later on Thursday.
"We will playing a number of tunes ... to get it right for customers."
A profit slump at rival Morrisons on Thursday laid bare the extent of competition in sector.
As a group, John Lewis reported profit before tax and exceptional items down 9 percent to 342.7 million pounds.
John Lewis said its 90,000 staff, known as partners, would be paid a bonus of 11 percent of salary, equal to nearly six weeks pay, down from 15 percent last year.
The outlook for the department stores was brighter than for the supermarkets, Mayfield said, with strong demand for fashion and homewares.
Sales at the chain, which has developed a successful online business to complement its stores, rose 9.2 percent to 4.43 billion pounds, and operating profit rose 10.8 percent to 250.5 million pounds, it said.
The department store business has consistently won market share over the last five years, as its generally more affluent customers avoided the worst of the economic downturn.
Editing by Kate Holton and David Evans