Video: Could Morrisons fall into foreign hands?

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TROUBLED supermarket chain Morrisons could be swallowed up by an overseas firm, according to a leading Yorkshire-based analyst.

David Loudon the managing partner of Leeds-based stockbroker Redmayne-Bentley, made the comments after Morrisons’ first-half profit plunged by more than a third to its lowest level in nine years, showing the scale of the task facing its new chief executive, David Potts.

David Potts, Morrisons CEO

David Potts, Morrisons CEO

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The country’s fourth-biggest supermarket, which is engaged in a price war with its bigger rivals to stem the loss of customers to discounters Aldi and Lidl, warned its turnaround plan would require substantial and sustained investment.

Mr Potts said his focus was on improving Morrisons’ core supermarket estate of about 500 larger stores – though he said he planned to close 11 of these, threatening 900 jobs. Pre-tax profits for the half-year to August 2 fell 47 per cent to £126m while like-for-like sales for the period dropped 2.7 per cent compared with the same period last year.

Mr Loudon said in a BusinessTalk programme from The Yorkshire Post: “At the moment, we’re still seeing signs of a business which is busy battening down the hatches and perhaps not quite ready to build for the future. The whole sector has been in great difficulty.

“Morrisons is the smallest of the Big Four supermarkets. They’re all facing the challenge of the discounters, which really came to the fore after the financial crisis. Aldi and Lidl are building market share.

“They’ve taken three or four per cent off the big supermarkets over the last three years. The new chief executive David Potts is clearly trying to control costs...to build profit.

“The world has changed. Aldi and Lidl have transformed that market. Morrisons of the big four, were the one with the value proposition and they still claim to be aiming in that direction. But it’s a different challenge now.”

Morrisons is facing extra pressure because it is the smallest of the major supermarkets, according to Mr Loudon

“There are serious weaknesses in this business,’’ he added. “Market share is not good. But they do have some advantages, they own more of their property than the other big boys, and they do control more of their supply chain.

“That’s good – that gives them more control over costs. But with the focus on value they are really going to struggle against the discounters.

“Are Morrisons going to be able to claw their way back towards the Big Three? In market share terms, they are quite distant from them now.

“They are closer to the challengers than they are to Sainsbury’s and Tesco. Or are they going to slip the other way? Are they going to be swallowed up with a takeover? That’s a possibility.

“I don’t think it’s going to happen just yet, but I think the next couple of quarters are going to be quite important. I think that’s why we’ve seen David Potts take the action he has.”

When asked what type of business might be interested in buying Morrisons, Mr Loudon said: “We could be looking at an overseas operation and someone who has a clearly different proposition.

“I’m not sure Morrisons proposition is sufficiently distinct.”

Last week, Morrisons’ share price rose following renewed takeover rumours. South African billionaire Christo Wiese repeated comments that he could look to invest in the UK supermarket sector.

He is staying tight-lipped about possible targets, but analysts believe Morrisons could be ripe for investment following a slump in its share price. Mr Wiese has already taken over fashion chain New Look, gym chain Virgin Active and he holds a fifth of supermarket chain Iceland.

Watch the interview with Mr Loudon on Business Talk TV at www.yorkshirepost.co.uk/video

• MORRISONS needs to update its image and learn lessons from the likes of discount chain Aldi, according to Ajaz Ahmed, the Yorkshire entrepreneur who co-founded Freeserve.

Mr Ahmed said that retailing was all about empathy, and he believed many people working in the sector had “simply lost the art of retailing”. He said people should not be embarrassed to call themselves shopkeepers.

In a separate development, it was also revealed yesterday that My Local, the former Morrisons’ convenience store chain, had agreed a new supply deal with Nisa.

The chain was bought on Wednesday by a management team led by entrepreneur Mike Greene, who have received backing from Greybull Capital.

My Local has reached an agreement with Nisa Retail, the specialist delivered wholesaler, to supply its chain of 140 stores across the UK, in a five-year deal worth up to £1bn. This is one of the largest recent supply deals in the convenience sector, and My Local will become one of Nisa’s major customers.

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