Blog: Katy AskewMorrisons CEO feeling the heat?

Katy Askew | 7 January 2013

Another poor set of numbers from UK supermarket group Morrisons has left some in the City wondering just how much pressure chief executive Dalton Philips is under.

"Pressure continues to grow on management, with sales again disappointing," Hargreaves Lansdown's Keith Bowman says.

According to management the retailer is suffering on two fronts: it is failing to communicate its message effectively - which can be fixed quickly - and it has not kept pace with the competition in developing an online and convenience footprint - which cannot.

To an extent, Philips has found himself in a bit of an untenable situation. He was not responsible for the decision to come late to the game in convenience and online. That call was down to his predecessor and now Marks & Spencer CEO Marc Bolland. Now that convenience and online are the two fastest-growing areas in UK retail - while core retailing is adopting a defensive position to prevent a sales haemorrhage - Morrisons sales are suffering.

However, in order to meet the short-term need to deliver returns to shareholders (and not hike up prices in the core business, which would be tantamount to committing retail suicide in the current environment), Philips cannot invest the capital necessary to catch-up with the competition in online and convenience. There is no magic wand.

During a media conference call this morning (7 January), Philips swatted away questions about whether he is running out of time to turn sales around, insisting that he "absolutely" expects to see his initiatives through at Morrisons.

Philips also emphasised that management has the backing of its shareholder base.

"The most important thing is that you have got a strategy and a plan that gets you to where you want to go. We have had very good feedback from our shareholder base on our strategy," Philips said.

So, where is the money to invest in convenience and online coming from? "We are very fortunate that we are disciplined in our core business, we have a lot of self-help opportunities.... I feel confident in where we are going," Philips said.

In part, funds are being drawn from cost-cutting measures. The company said it has a self-help programme called Fresh Working, which will see it reduce its cost base by around GBP300m by reducing administrative layers, "buying better" and increasing productivity.

If Philips is right, he hopes to be "trading for today and building for tomorrow" by balancing the need to invest in longer-term strategic measure against the imperative of generating returns.

 


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