On the money: Morrisons keeps close eye on discounters

Morrisons CEO Dalton Philips has insisted the UK retailer will not chase unprofitable volume in a highly promotional market.

The company today (3 May) reported its like-for-like sales, excluding fuel, fell 1% in the 13 weeks to 29 April, the first quarter of its financial year. It was Morrisons' first drop in like-for-like sales since 2005.

"It's a tough economic environment, consumers have seen their incomes fall and it has put pressure on budgets," Philips told journalists this morning (3 May). "We see that in volumes which are down overall. The pursuit of volume has led to more promotional activity, particularly vouchers."

Philips said more retailers are now using vouchers or coupons, a strategy Morrisons has also used to try to win consumers.

"Everybody is playing around with these vouchers and we have to be very focused on them, which we are. As a retailer you are always wanting to sell more and trying to fight in all corners. They do offer something that is very compelling, that is why we have had to focus so hard on our M Savers range and how we promote that because if you don't, customers will go elsewhere."

Philips revealed Morrisons is carefully balancing its promotional levels and has chosen to be "very selective" in its use of the voucher mechanic, instead offering consumers value through its entry-level M Savers line.

"We are prepared to sit back from this activity rather than pursue small market share gains at any cost. We would rather focus on value in store than customers having to be smart and find a voucher. We are saying [the value] is in our shops and we offer very significant savings to the branded equivalent."

Looking at the competitive scene, Philips also highlighted the growth the UK's discount retailers are currently enjoying.

"It's a very competitive environment indeed and the discounters have been growing very strongly, you can see that from Aldi's performance. They are doing well. They offer something pretty unique in the market and there is a growing acceptance from the British consumer to shop in these so you have to watch them," he said.

"They're all out there and they offer something pretty compelling to the consumer and we have to be watching them like a hawk and we are watching them very carefully at the moment," he added.

However, Philips insisted Morrisons would not look to mimic the pricing policy adopted by the discounters.

"The deals they're getting, whether its from the grey market or excess stock ... it's not acceptable. When you see some of these products popping up in the discounters at that value, we're not going to accept it."

Philips said that as "economic uncertainty persists" it anticipates the level of promotional activity across the market to "remain high" in 2012.

"Looking forward, we knew 2012 would be a tough year and we remain cautious on the economic outlook."

ShoreCap analyst Clive Black said the retailer's results were “disappointing”.

"There is no doubt about that to our minds and the performance recorded underscores our concerns about the performance of the group in recent weeks," Black said.

In contrast, however, Conlumino senior consultant Joseph Robinson believes the long-term course which Philips has put Morrisons on "seems sensible".

"The grocer's focus on providing fresh and good-quality products, at comparatively low prices, is helping it to differentiate from its competitors and has, to an extent, negated the need for the same level of deep promotional activity as its rivals. Indeed, Morrisons' fresh emphasis positions it in good stead for the long term, with fresh set to replace space as the key battleground for food and grocery market share."

Morrisons' share price had fallen 0.96% to 277.30 pence at 13:11 BST today.