Morrisons profits slump by 51% to £181m in first half of 2014

Sarah Butler
11 September 2014
The Guardian
Chief executive says supermarket ‘made its calls early’ to compete with low-cost rivals and has increased dividend by 5%
Morrisons’ underlying sales, which exclude new stores openings, VAT and fuel, slid 7.4% in the six months to 3 August. Photograph: Amer Ghazzal/ Demotix/Corbis
The impact of the growing food price war and a dramatic shift in shopping habits were underlined yesterday as two of the UK’s biggest supermarkets revealed a slump in profits.
Morrisons’ profits dived 51% over the summer after the Bradford-based chain slashed prices on 1,200 items by an average 17% in May. At the same time upmarket Waitrose’s operating profits slipped 9.4% as it was also forced to invest in price cuts and store revamps.
Ocado’s sales increased by 15.5% in the 12 weeks to 10 August as it benefited from the switch to home deliveries. The number of orders placed soared by more than 17% – but some analysts expressed disappointment about the pace of growth as customers spent less per order – £111.64 compared with £113.54 a year earlier.
All the major supermarkets are seeking to hold on to shoppers that are being lured away by the cheap prices of Aldi and Lidl, causing chains such as Asda and Tesco to launch a swath of price cuts on a basket of everyday items.
The advance of Aldi was also emphasised as it announced plans to spend £70m on extending its UK headquarters as part of a plan to nearly double its UK stores to 1,000 by 2021, which means more than six store openings a month, every month, for the next six years.
The pressure is expected to intensify after Tesco, the UK’s biggest supermarket, brought in a new chief executive, Dave Lewis, who is expected to be much more aggressive on price than his predecessor.
Yesterday it emerged that Morrisons is to spend nearly 25% more on price cuts between now and January than it spent during its high profile “I’m Cheaper” summer campaign.
The supermarket invested £135m in price cuts and improving products in the first half but has £165m to play with in the all-important run up to Christmas. The vast majority of that investment is going on price cuts and the rest on improving the quality of own-label foods.
Morrisons surprised analysts by increasing its dividend payout by 5%, despite the collapse in its first-half profits. But Dalton Philips, Morrisons’ under-pressure chief executive, insisted there was “a real sense the business is getting back on the front foot”. Profits were just £181m in the six months to 3 August.
Philips said Morrisons had increased its dividend as a “clear signal of confidence” in his plan to take on the discounters. He has also extended opening hours.
But Bruno Monteyne, an analyst at Bernstein Research, was unimpressed. He commented: “This is not everyday low prices driving true [customer] traffic improvements, but desperate marketing activities and creative new measures creating the illusion of green shoots.”
Philips denied Morrisons was “buying” sales with heavy voucher campaigns but admitted Morrisons’ efforts were unlikely to attract more shoppers or increase sales until at least the end of the year. “It’s still tough, really tough, but there are encouraging signs. We made our calls early and the whole business responded well and we are up for the fight,” Philips said.
Mark Price, Waitrose’s boss said its MyWaitrose loyalty card, which offers shoppers a free cup of coffee every time they visit a store, had encouraged shoppers to visit twice as often and spend more each time and this had more than offset the costs of the scheme. He said profits had been hit by new store openings and refits as well as £10m on cutting the price of staples such as milk, eggs and butter.
Like-for-like sales at Waitrose rose by just 1.3%, despite a 54% increase in online sales as the chain cut prices and battled to win business in the slowest grocery market for more than a decade.