Crisis faces Fortnum & Mason

Fortnum & Mason, the Piccadilly store whose name is a byword for old-fashioned shopping gentility, is facing the worst financial crisis in its 300-year history.

The extent of the problems facing the Queen's favourite grocers is revealed in accounts showing profits down by 40 per cent, the fifth fall in eight years and more than 80 per cent lower than their £3.6 million peak in 1997.

For tnum's, known for its frock-coated doormen and instantlyrecognisable green carrier bags, blames the war in Iraq but warns trade shows no signs of picking up.

Analysts say the problems run deeper at the store, one of London's oldest. They claim it faces a remorseless slide into the red - and possible oblivion - unless it can shed the shackles of its traditions.

Pre-tax profits fell to £638,000 in the year to 13 July. Sales were £39.35 million, down slightly from £40.03 million in the previous year.

In a statement, the store, which is controlled by the Canadian Weston family, said: "The company continued to face tough conditions during the year with business suffering particularly in the second half with the impact of the Iraq war on overseas visitors to London... The directors expect market conditions to remain challenging during the coming financial year." No directors were available to explain how the store's fortunes would be turned around.

Over the past two years Fortnum's has made drastic cost-cuts. Salaries were frozen, the final-salary pension scheme for staff was scrapped and the famous ground-floor food hall and Fountains Restaurant began opening on Sundays for the first time.

Retail experts said the store - chaired by Jana Khayat, granddaughter of Associated British Foods founder Garfield Weston - is trapped in a timewarp that leaves it dangerously dependent on tourism .

Neill Denny, editor of Retail Week said: "It has simply been too slowmoving under the Westons. In recent years they have been trading on past glories and give the appearance of being buried under the weight of all those royal warrants. They have four floors of expensive clothing and furniture that nobody goes to. I have never understood why they don't sell more food and put more effort into making more of their fantastic brand name overseas. They have become a Disney version of English retailing as it was 50 years ago, reinterpreted by a foreigner."

Analysts point to the rejuvenation of Hamleys, another venerable London store of similar size. Under energetic new management and on similar sales levels to Fortnum's, it now makes more than £5 million.

Fortnum's is also thought to be a victim of its location. Maureen Hinton, a consultant at retail analysts Verdict said: "Most people going that far down Bond Street just want to turn back or go to the Royal Academy by the time they get to Piccadilly."