Talking shop: Looking to Morrisons' future
Morrisons new CEO Dalton Philips revealed a raft of initiatives alongside the retailer's H1 results
Alongside Morrisons' half-year results yesterday, the UK retailer's new CEO Dalton Philips announced a raft of new initiatives the company plans to roll out.
Aside from plans to enter the convenience sector and that the growing consideration given to moving into the online channel, under its new boss Morrisons is also looking at a series of other programmes.
Philips wants to simplify Morrisons' range, differentiate its private labels, continue with the retailer's expansion plans and experiment with its well regarded fresh offer.
Morrisons has enjoyed three years of buoyant growth but, as that growth has slowed, there have been calls for the retailer's management to give a fresh boost to the business.
Verdict consulting director Neil Saunders says the initiatives look set to Morrisons' momentum and will provide "extra avenues of growth for Morrisons going forward".
Saunders says that Morrisons' plans to make its existing estate perform better are "key" to driving up the 0.9% like-for-like sales growth it posted in the six months to 1 August. "Its like for like-numbers were okay, but perhaps weaker than what some people were expecting," he points out.
Plans to both grow through new channels, while optimising the ones it currently operates have gone down well. "Plans to develop convenience store concept and its commitment to investigating online were balanced by its plans to get its existing stores working harder," says Saunders.
He adds that Morrisons' plans to rationalise its range and improve its private label differentiation are positive steps because that will inevitably get those stores working a lot harder, and help to up the average transaction size.
Philips revealed plans to move from "own-label" to "Morrisons brand", which he says will be enabled by "true differentiation", adding that he sees potential for GBP12m in sales each week from private label.
Saunders argued that the retailer is unlikely to increase the number of private-label products it offers, as it is currently trying to "simplify its range. "While Morrisons already has private label, one of the problems is that it's quite confusing and a little bit bitty, which means that there is no weight behind it and it is not easy for customers to navigate their way through," he tells just-food.
Instead, Morrisons is likely to strengthen its proposition and define the difference between its economy, main-line and premium ranges, much in the same way as Tesco has done with its Tesco Value, Tesco and Tesco Finest labels or Waitrose with its Essentials line.
Saunders, meanwhile, thinks that Morrisons' space initiative will be particularly important in the coming months. "They haven't got as many stores as they would like," Saunders says, although he adds this is an advantage for Morrisons as, unlike larger retailers like Tesco, there are more places where it can expand into.
Morrisons also plans to reinvigorate its fresh offer, through its "Fresh Lab" where it will experiment with new fresh offers, like fruit bars. Philips also announced plans for a Classic Kitchen that will offer "homemade meals prepared instore", Fresh to Go counters that will offer pizzas, baguettes and rolls to order, as well as new ranges, merchandising, layouts and messaging.
Saunders, however, does not see these plans as being an essential part of Morrisons' plans. They are, Saunders argues, "nice additional things that will help boost growth," but alone will not have too much of an impact.
Revealing more detail about the retailer's online ambitions, Philips said testing would begin in 2011 with a geographic trial, saying that if "it doesn't make money, there is no point doing it". He said that Morrisons is considering a number of different fulfilment models but has not decided which one it will push ahead with.
Saunders believes that Morrisons is likely to consider a click-and-collect model as it "avoids many of the costs associated with home delivery". However, he added the downside to this would be that it doesn't bring the brand into what Philips said yesterday were the seven million homes that are not within easy access of a Morrisons outlet.
The City seems to have been broadly positive about Philips' ideas. "Dalton Philips came across very well at his results meeting debut with his retailing knowledge clear and sitting alongside loads of passion and loads of ideas, all of which should enhance what is already a successful business model which has clear competitive advantages," RBS analyst Justin Scarborough said.
However, Saunders cautions that the initial goodwill for Philips could dissipate once the challenge of implementing his initiatives begins.
"For the moment they've brought out these initiatives, which have broadly been greeted positively, but the execution of those things is quite challenging, because Morrisons doesn't really run small stores, and it is used to lots of theatre from its Market Street. What the City will be looking for, will be that these initiatives have been rolled out, they have worked and there are plans to extend them for growth," Saunders says.
And the industry will wait to see how it all plays out.
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