Morrisons sales worsen as customers head for discounters

Graham Ruddick
08 May 2014
Telegraph UK
Like-for-like sales slump 7.1pc for Yorkshire-based supermarket
The challenges facing Wm Morrison have been laid bare after the supermarket retailer reported a 7.1pc slump in like-for-like sale, a performance that analysts said were “as bad as we can recall”.
The slide in like-for-like sales, unprecedented in the 21st century for one of the large supermarkets, covers the 13 weeks to May 4 and is excluding fuel. Total sales for Morrisons were down 4.2pc
Morrisons has already warned that profits this year will halve due to tough trading and the fact it will cut prices in an attempt to compete against the discounters Aldi and Lidl.
Dalton Philips, chief executive, said that strategy is “on track” and the early response from customers to a £1bn price-cutting drive has been “very positive”.
However, analysts described the sales figures as “woeful” and “dire”.
David McCarthy, analyst at HSBC, said: “A 7pc like-for-like decline, total sales down 4pc and 60 basis point loss of market share, despite £1bn capital expenditure in 2013/14, is as bad a statement as we can recall.
“Morrison is suffering from its own specific problems – high vulnerability to discounters, lack of scale and self-inflicted wounds – and from structural issues – the decline of large stores, the rise of new channels.
“As bad as trading is, it is worse than first appears, as stripping out maturing space, new channels, etc, means that core stores are down circa 9pc in sales and 10pc in volume.”
Mr Philips said there were “profound structural changes in the grocery market”.
However, shares in the Bradford-based company rose 5.92, or 3pc, to 196.72p.
Morrisons said that profits remained in line with the lowered expectation despite the fall in sales, and investors took heart to the early response from customers to the retailer’s price cuts.
Morrisons also said its new online business is performing ahead of expectations and it is still aiming to open 200 M Local convenience stores by the end of 2014.
However, shares in the company are down by a quarter so far in 2014 and pressure is building on Mr Philips and Morrisons chairman, Sir Ian Gibson. One former director, Roger Owen, has called for the pair to step aside and claimed the Bradford-based company is a “supertanker heading towards an iceberg”.
In response to the fall in sales, Morrisons committed £1bn in March to cutting prices and improving its own-brand food over the next three years. As part of this, the company last week cut the price of 1,200 products by an average of 17pc. The price cuts are accompanied by a new advertising campaign titled “I’m your new cheaper Morrisons”.
Mr Philips is banking on the price cuts to encourage shoppers to spend more at Morrisons and dampen the threat from Aldi and Lidl. However, the Morrisons boss warned that like-for-like sales are “unlikely to improve anytime soon” because the cuts will have a deflationary impact on sales. Instead, Morrisons plans to judge its progress by the average number of items shoppers buy and the number of shoppers visiting the retailer’s stores.
He also insisted the Morrisons was not simply in a “race to the bottom”.
Mr Philips said: “We stand for value. Last week was a real statement. It was a declaration of independence. But we stand for so much more. It is definitely not a race to the bottom.”
The Morrisons boss said shareholders are supportive of the strategy but will “hold our feet to the fire in terms of execution”.
However, Neil Saunders, retail analyst at Conlumino, warned the price cuts could damage the Morrisons brand.
He said: “The renewed focus on price through the “I’m Cheaper” campaign is certainly aligned with current market thinking in terms of targeting the deep discounters.
“However, therein lies a problem: with all players focusing on price, this tactic is a rather blunt differentiator.
“The issue for Morrisons is that if its cuts do not deliver increased volume they will simply have a negative impact on profitability and will weaken the chain still further. Sadly, we believe this is a distinct possibility.”
On Wednesday, Morrisons rival J Sainsbury posted record annual profits but warned that sales growth has ground to a halt.
Justin King, who will step down as Sainsbury’s chief executive in July after a decade in charge, said the price cuts were part of the “cut and thrust of a price skirmish”.