Trade Resources Company News Britain's Fourth Largest Supermarket Is Still "in a Difficult Place"

Britain's Fourth Largest Supermarket Is Still "in a Difficult Place"

Morrisons’ latest results reveal Britain’s fourth largest supermarket is still “in a difficult place”, as it grapples with three specific challenges, according to City analyst Investec.

In addition to the problems of falling real incomes and rising real prices encountered by its rivals, Morrisons had to grapple with its own problems of: northern bias, ageing population and lack of multi-channels, said Investec analyst Dave McCarthy.

“The north is suffering more than London and the south-east and consequently Morrisons is suffering more than most,” said McCarthy. This problem was exacerbated by the fact that most retail discounters are based in the north.

Britain’s ageing population was another particular challenge for Morrisons. The supermarket had “traditionally over indexed on older segments of the population, and in many instances, those segments are suffering from declines in real incomes”, said McCarthy.

Lack of multi-channel outlets

Finally, the retailer had to get to remedy its lack of multi-channel outlets. While Morrisons is investing in multi-channel retailing – incurring £40M of extra costs this year on top of £17M last year – sales from convenience will only be “trickling through”, he said. Also, online will not be launched until next year.

“It [Morrisons] is suffering more than most due to structural issues, as it is not represented in growing channels,” he said. “And it is being hurt more by cyclical issues due to geographic and demographic bias and is facing company specific issues as it tries to correct the mistakes of the past year.”

Consequently, sales will remain weak compared with competitors that already have their convenience and internet businesses up and running, predicted McCarthy.

But the retailer had a “self-help programme”, which would help to offset the problems to a degree.

‘Bad markets’

McCarthy concluded his comments on Morrisons with a quote from billionaire financier Warren Buffet: “When bad markets and good management meet, it is bad markets that emerge with their reputations intact.”

Investec cut its recommendation on the retailer’s stock from ‘hold’ to ‘sell’.

Meanwhile, Morrisons revealed in its latest financial statement, covering the 53 weeks to February 3 2013 released yesterday (March 14), that it was in discussion with online distribution firm Ocado.

The retailer put its faith in online sales and more convenience stores to revive its flagging fortunes, as it reported profit before tax down by 4% to £901M.

Grocery think tank IGD confirmed that the total UK convenience market was worth £34bn in the year to April 2012. It forecasts this to rise to £44bn by 2017.

An IGD statement said: “We are forecasting the UK convenience market to grow by 29% over the next five years, compared to 18% for the overall UK grocery market over the same period.”

The online food and grocery market was set to reach £11.1bn by 2017, almost double its value of £5.6bn in the year to April 2012.

That represented a compound annual growth rate of 14.6% between 2012 and 2017, said IGD.

UK convenience and online food and grocery sales – in numbers

  • 34bn – value in £s of the convenience market in year to April 2012. This to rise to:
  • 44bn – value in £s of convenience market by 2017
  • 5.6bn – value in £s of online food and grocery in year to April 2012
  • 11.1bn – value in £s of online food and grocery by 2017
Source: http://www.foodmanufacture.co.uk/Business-News/Morrisons-in-a-difficult-space-facing-three-key-risks-City
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Morrisons ‘in a Difficult Space’ Facing Three Key Risks: City