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January 10, 2011

On the money: Morrisons deflects criticism over “lost momentum”

The CEO of Morrisons today (10 January) deflected criticism that the UK grocery retailer lost momentum in the lead up to the Christmas period.

The CEO of Morrisons today (10 January) deflected criticism that the UK grocery retailer lost momentum in the lead up to the Christmas period.

The criticism came as the retailer recorded 1% like-for-likes for the Christmas period against 6.5% in the same period of the previous year, and somewhat weaker Nielsen and Kantar results both compared to its peers and prior years.

Also facing criticism that it has not moved forward quickly enough with plans to enter the online and convenience channels, Dalton Philips defended the retailer, saying: “We have not lost momentum at all, in fact we are in a very good place”.

Highlighting its recent executive appointments as proof of its strength, Philips said the changes to his senior management team “demonstrate our ability to attract the best talent out there… which just shows the great potential that people see for the retailer”.

CFO Richard Pennycook also leapt to the retailer’s defence, adding that it has just recorded “record sales, and confirmed that our profit expectations remain unchanged”. He added: “If we deliver that, it will be the biggest profit growth of the Big Four [Tesco, Asda, Sainsbury’s and Morrisons] this year.”

Defending its caution over the online channel, which the retailer plans to enter in the middle of this year, Philips said: “Sometimes there is first-mover advantage and sometimes there is second-mover advantage and there is definitely a second-mover advantage with online.”

However, he did concede that Morrisons could have looked at the convenience channel sooner but added that it might have distracted it from developing its manufacturing capacity. Speaking of the decision, he said: “I was happier to do that instead of going after the convenience market”.

The criticism comes against against the backdrop of Kantar data which saw Morrisons’ market share drop from 12.1% to 12%, over the quarter ended 28 November – its first decrease in three years.

However Philips said the Kantar data is misleading, with it focusing on new store space rather than like-for-like growth.

“This Kantar data is a reflection of total store space, and so that’s how quickly you’re putting new space down, and we’re prudent as we put down space, this isn’t a race. It’s about getting space down that’s productive from day one and I’m just not going to enter into this race for space,” said Philips.

He added that the company’s focus remains on “liberating space” in its current stores as well as building its private label, and improving efficiency as well as its “strategic initiatives” of moving into online and convenience.

Philips described the 1% like-for-like sales rise for the Christmas period as a “good performance” in what he said has been a challenging environment for the consumer and against tough trading comparatives.

Analysts also seemed satisfied with the retailer’s results, with RBS analyst Justin Scarborough saying the trading update held “no real surprises”, adding that if Morrisons’ like-for-like growth was aligned against its peers’ reporting, by including VAT and the Co-olp stores’ contribution, he estimated that the retailer would have reported like-for-like sales growth “north of 2.0%”.

Additionally, Bank of America Merrill Lynch analyst John Kershaw said in a note today that the 1% like-for-like growth was “better than our 0.2% forecast,” which he said demonstrated resilience against a “very tough festive comp and the disruptive snowy conditions in late November and the key Christmas week.”

Meanwhile, shares in the retailer remained flat today at 270p a share at 11:14 GMT today after rising in early trading.

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