Blog: Dean BestKantar data adds to City nervousness over Morrisons

Dean Best | 11 February 2014

The latest Kantar Worldpanel data on the market shares of the major UK grocers underlined trends that have been in train for months now - Tesco suffering, Sainsbury's holding firm and Aldi, Lidl and Waitrose continuing to make inroads. However, the fresh erosion in Morrisons' market share caught the eye.

The UK grocery market is very subdued. Kantar said today (11 February) the sector was seeing "the slowest industry growth since 2005", emphasising how tough trading conditions are.

Much of the data echoed what has been seen in recent months. The till roll figures for the 12 weeks to 2 February showed Tesco's sales fell year-on-year by 0.4%, taking its share of the UK grocery market down from 30% a year ago to 29.2%.

Asda's sales were up (0.5%) but its share dipped from 17.7% to 17.3%. The Co-op was another to see its share decline, sliding from 6.2% to 6.1%.

Sainsbury's held firm, its sales up 2.7% and its market share inching up from 17% to 17.1%.

At opposite ends of the value spectrum, Waitrose, Aldi and Lidl continued to gain ground. Aldi's share went up from 3.2% to 4.1% after a 32% jump in sales.

However, the data for Morrisons highlighted the challenge facing Dalton Philips and his colleagues.

Sales at the UK's fourth-largest grocer slid 2.5%, Kantar said. Morrisons' market share fell from 11.8% to 11.3%.

Shore Capital analyst Clive Black said this afternoon Morrisons performance was "a major cause for concern" following the retailer's Christmas trading update, in which it said like-for-like sales were down more than 5%.

Philips and his colleagues have pointed to the fact its rivals have larger businesses in two key channels in the UK market - convenience and online. Morrisons has been investing heavily, with c-stores opening across the country and its home delivery service starting last month.

However, for Black, Morrisons' problems go deeper. "Morrisons has stated that convenience and online have been important factors behind its under-performance yet with steps forward on these fronts, its relative and absolute performance is, if anything, deteriorating," he said. "Accordingly, after inflation and new space, it is not inconceivable that Morrisons' LFL volumes continue to fall at mid-to-high single-digit percentage rates. If such momentum persists then we cannot rule out further considerable downgrades to earnings; earnings expectations that have fallen by over 30% for 2014/15F over the last two years. Whatever way one characterises Morrisons' current trading strategy, which embodies considerable promotional participation still, it is clearly not working and one senses that fundamental change is necessary, which cannot revolve just around base price, although it probably needs some attention."

In the face of pressure on trading, there has been speculation Morrisons is facing investor pressure to sell off property to boost returns for shareholders. Morrisons' review of its balance sheet could be published alongside its annual results in March, although Black cautions against significant property transactions.

"Indeed, we argue that a major property deal and accompanying Opco-Propco structure, could lead to a considerable deterioration in Morrisons' profitability if the trajectory of trading profitability remains on its present course by introducing a material new rental stream to the operating lines," he said. "Indeed, we assert that the freehold estate of Morrisons is the key support for its shares at present. With downside support to the shares from its freehold asset base for now we nervously retain our hold stance on the group's shares.

Shares in Morrisons were down 1.46% at 236.78p at 15:33 GMT. The stock has fallen more than 9% since the start of the year.


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