Blackfriar: Think long term and the Morrisons’ vision can work

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Morrisons has seen its shares tumble day after day on the back of hawkish broker notes following the group’s declaration last week that its recovery will take years not months.

Critics have scorned new CEO David Pott’s six-point plan to return the business to its former glories.

Admittedly on the surface the six point plan sounds a bit wishy washy – ​to be more competitive​, to serve customers better​, ​​to find local solutions, to develop popular and useful services​, to simplify and speed up the organisation​ and to make the core supermarkets strong again​.​

But when Mr Potts went into detail they all make eminent sense.

The first goal is to become more competitive by cutting the price of everyday items.

​After investing​ ​£​181​m in its first half, mostly​ on price cuts, ​Mr ​Potts said the full-year investment w​ill​ top ​£​300​m.

​“Price is a vital part of this brand,” he said.

The second is to improve customer service following complaints that store staff seem disengaged, which is seen as a reflection of previous management decisions.

Mr Potts said that customer satisfaction has improved in recent months.

The third is the introduction of different merchandise to suit different areas. Mr Potts said that wealthy areas such as Brough will have different produce to stores in Leeds that serve the student population.

The fourth is the introduction of more popular services such as cafes, dry cleaners and pharmacies, which drive footfall.

The fifth is a return to Sir Ken Morrison’s vision of a simple business that sells quality fresh food at low prices.

Mr Potts has slashed head office numbers from 3,500 to 2,000 and brought in 5,000 more in-store staff in a bid to return to basics.

The final aim is to return the core supermarket estate to growth and the group will upgrade its entire store estate by the end of 2018.

Under former management some stores were given expensive upgrades including the controversial vegetable misting machines, which many saw as a misguided attempt to move upmarket, but 200 stores have not been touched over the past five years.

One interesting development is the news that Morrisons is testing a new logo at the Merrion Centre store in Leeds, which incorporates the phrase “Since 1899”, pushing the group’s heritage credentials.

Despite these plans, analysts have been harsh about Morrisons’ future prospects.

Moody’s said that while Morrisons has made substantial progress in reducing its debt levels over the last 18 months, the competitive pressure from discounters Aldi and Lidl means this has been more than offset by a fall in earnings and retained cash flows.

Moody’s lowered its rating on the company’s long-term debt to Baa3 from Baa2.

Sven Reinke, the lead analyst for Morrisons’ at Moody’s, said: “Structural changes in the UK grocery sector, particularly the ongoing shift of consumers to discounters, convenience stores and online retailers, has caused Morrisons’ earnings to contract beyond our previous expectations.”

The latest news that 11 stores, including one in Northallerton in North Yorkshire, will clos e with the potential loss of 900 jobs is a blow to the communities concerned, but all 11 stores are loss-making and Morrisons cannot afford to continue the spending spree that took place under former CEO Dalton Philips.

Tough decisions have to be made and the group cannot afford to carry stores that are undermining the core business.

Both Mr Potts and respected finance director Trevor Strain have bought shares in Morrisons recently, clearly demonstrating their faith in its recovery. ​

Both are seasoned, experienced retailers and the fact they have both put their money where their mouth is​ says a lot for Morrisons future.

Investors need to think long term and see the bigger picture.