Last week’s food retail headlines were made by Tesco and Carrefour. This week, Morrisons will be the next grocer to face questions over its strategy.
The notion that Japan’s powerful food manufacturers were a factor in the failure of Tesco’s venture in the country will cause a wry smile or two among UK suppliers.
However, Japan as a “supplier-dominated market” was a theory put forward by at least one UK retail analyst last week as industry watchers picked over why Tesco had decided to quit the market after eight years in the country. Moreover, as we reported last week, Tesco’s departure from Japan prompted questions about some of the retailer’s other international operations, particularly the US, where the company’s Fresh & Easy venture is still to make a profit.
The decision to quit Japan proves CEO Philip Clarke will make tough decisions but, at least in the short term, it does not mean Tesco is set to raise the white flag across the Atlantic. The Tesco chief is on record as saying he is confident the US chain will be profitable by the end of 2012/13 and Clarke appears willing to show patience towards Fresh & Easy – for the next 18 months or so at least.
Another leading retail executive facing questions last week was Carrefour CEO Lars Olofsson. The French retailer reported a slump in half-year earnings, which led to an expected profit warning for 2011. Carrefour’s “growth markets” are now more profitable than its operations in France, where Olofsson, once again, is set to launch a strategy to try to revive the business.
After Carrefour’s “Transformation Plan” and its “Action Plan”, the retailer is to embark on a “new game plan”, a programme that this time focuses squarely on France. Analysts, however, remain uneasy, with Carrefour facing the accusation that the new plan is not that much different from previous attempts to revitalise its business. After two-and-a-half years in the Carrefour hot seat Olofsson is facing growing pressure to deliver.
This week, Morrisons chief executive Dalton Philips will be in the spotlight when he announces the retailer’s half-year results. The UK’s fourth-largest grocer has been growing sales ahead of the market, although, like its rivals, its growth is lagging the inflation seen in the sector.
However, Philips will face questions about his plans to move the business further into convenience and online. A year ago, Philips said Morrisons would look to open convenience stores on a trial basis and would consider developing an online service. Since then, Morrisons has opened its first M-local store (and plans to open two more) and acquired a 10% stake in US online retailer FreshDirect, a move to help it set up its first online service, to be launched in London.
Oriel Securities analyst Jonathan Pritchard says the retailer had “exceeded” his expectations on like-for-like sales. However, he is less complimentary about Morrisons’ diversification. “Customers want more than plain vanilla superstore food retailing these days – non-food, convenience, internet etc and, whilst the self-help open to the company is worthwhile and deliverable, we fear that the LFL form will wane eventually.”
Philips is a man unwilling to be rushed into hasty expansion; last March, when Morrisons announced the FreshDirect deal, he was asked about the retailer’s online ambitions. The decision to launch a service in London pushed back Morrisons’ plans to enter the online space but Philips was quick to point to his rivals’ records online. However, some industry watchers still want him to go further – and faster.