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(Adds comments on Waitrose's performance)
By Neil Maidment
LONDON, Sept 10 (Reuters) - British retailer John Lewis'supmarket grocer Waitrose reported on Thursday that trade wasslowly improving as new loyalty offers, cafes and onlineclick-and-collect demand helps attract shoppers in an industrybesieged by a price war.
Britain's big four grocers Tesco, Asda,Sainsbury's and Morrisons are all beingsqueezed at one end by Waitrose and upmarket rival Marks &Spencer and at the other end by discounters Aldi andLidl.
As a result the major players are improving service andcutting prices to stay competitive, much to the detriment ofprofits, but Waitrose said on Thursday cost controls and marketshare gains had helped keep underlying operating profits broadlyflat at 135.5 million pounds in the six months to Aug. 1.
"We are on a slowly improving trajectory, both in terms ofaverage item price and in terms of customer spend andconfidence," Waitrose Managing Director Mark Price said,pointing to an average of 280,000 more customer transactions aweek than a year ago.
"We are not going to see a big spike all of a sudden but Iwould say it is gradually improving," Price said, in contrast togloomier outlooks from its bigger rivals.
Britain's sixth biggest grocer, Waitrose has grown itsmarket share to 5.1 percent while others have lost ground,retaining its wealthier middle class clientele and pulling inothers with offers and price matches on products sold elsewhere.
Price cuts pushed underlying sales down 1.3 percent in thehalf, though the trend was improving week by week the firm said.
That compared to a 2.7 percent fall at Britain's fourthbiggest supermarket Morrisons, which reported a 35percent drop in profit on Thursday.
"Waitrose should continue to out-perform the market with itsnew stores, strengthened online presence and ongoing innovativeapproach seemingly pleasing the majority of its customers,"Shore Capital analyst Clive Black said.
In July Waitrose launched a scheme whereby loyalty customerscan choose 10 products from a list which they can save 20percent on, with 700,000 shoppers now signed up.
Waitrose's half-year results were part of those published onThursday by parent group John Lewis Partnership, whichwarned pension charges could cut the group's full-year profitsby up to 21 percent, forecasting a range of 270 and 320 millionpounds. It made a profit in the previous year of 342.7 millionpounds.
Its first-half pretax profit before exceptional items fell26 percent to 96.7 million pounds due to the pension problem andhigher costs at the John Lewis department stores business.
Underlying trade at John Lewis was solid, up 3 percent inthe half, as strong demand for fashion and home products offsetweakening demand for items such as tablets and TVs. (Editing by Sarah Young and Greg Mahlich)
