By James Davey
LONDON (Reuters) - British grocer Morrisons (L:MRW) will launch its first customer loyalty card on Friday, opening up a new front in an escalating price war with a scheme that guarantees to match discounters Aldi and Lidl as well as traditional rivals.
The initiative, announced by Morrisons on Thursday, comes a day after "big four" rival Sainsbury's (L:SBRY) cut its annual sales forecast and warned of the most challenging market conditions for 30-years, knocking 1.2 billion pounds off the value of the quoted UK grocery sector, which also includes market leader Tesco (L:TSCO).
The sector was already reeling from an accounting scandal at Tesco after it overstated first-half profit by 250 million pounds.
Morrisons, Britain's fourth biggest grocer, issued a massive profit warning in March and set out a plan to restore its low-price reputation.
It is aiming to boost sales volumes by spending 1 billion pounds cutting prices over the next three years, to respond to the market share it has lost to German discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL].
Morrisons has also suffered because it lagged rivals in entering fast-growing online and convenience store markets. Its like-for-like sales slumped 7.6 percent in its second quarter.
The firm said on Thursday its "Match & More" price match and points card will have a phased roll out across the UK, starting on Friday. Its cost forms part of the 300 million pounds Morrisons is investing in its 2014-15 year.
Under the scheme if a comparable basket of groceries could have been bought for less at one of Tesco, Wal-Mart's (N:WMT) Asda, Sainsbury, Aldi and Lidl, Match & More cardholders will automatically get the difference back in points on their card.
"GAME CHANGER"
"We are not and we will not become a discounter. Match & More is about neutralising on price, so that the rest of our offer will really shine through," Chief Executive Dalton Philips told reporters.
He said it was "a real game changer for our customers." However, some analysts were not so sure.
"We believe that the customer is increasingly suspicious of the concept of ‘price matching'," said Shore Capital analyst Clive Black, who has a "hold" stance on Morrisons.
"We can imagine Aldi and Lidl playing much mischief with Match & More, not least because it may be reminding customers each week how much more expensive Morrisons is."
With Tesco, Asda and Sainsbury's also cutting prices, industry profit margins are being squeezed. Tesco has warned on profits three times in two months.
Analysts expect new Tesco boss Dave Lewis to cut prices further to bolster its flagging trade, which will shake-up the market even more.
Tesco's profit mis-statement related to income the grocer receives from food suppliers for selling more of their goods.
Morrisons Finance Director Trevor Strain said the firm was "absolutely confident" in how it accounts for supplier income.
"Morrisons has always been and remains very prudent in all things relating to how we account right across the business," he said.
Shares in Morrisons, down 39 percent so far this year, were up 0.4 percent at 161 pence at 1412 GMT (3.12 p.m. BST). Shares in Tesco were up 0.4 percent, while shares in Sainsbury's were down 1.5 percent.
(Reporting by James Davey; editing by Kate Holton)