Blackfriar: Morrisons could become a target for overseas buyers

Morrisons was the weakest of the big four supermarkets for the second month running after registering a 2.7 per cent fall in sales over the last three months, according to the latest Kantar figures.

Morrisons performance is in marked contrast to its performance last year

This is the Bradford-based firm’s worst performance since October 2016 and it compounds the weak three month period reported last month, when sales fell 2.6 per cent.

Morrisons’ performance is in marked contrast to its performance last year when it was declared the best performer among the big four.

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Analysts at Bernstein said Morrisons’ food and drink sales fell 2.9 per cent, making it by far the worst out of the big four for the fourth consecutive period.

Sales at all the big four supermarket chains have fallen over the past three months, hit by poor weather and tough comparisons with last year.

The latest figures from Kantar show that Morrisons was the worst hit in the 12 weeks to August 11 as shoppers put fewer items in their baskets.

Fraser McKevitt, head of retail and consumer insight at Kantar, said Morrisons’ fundamental problem is average basket sizes are getting smaller.

He also claimed that Morrisons has raised the level of promotions, so 46 per cent of what Morrisons sells is on some kind of promotion, which is way higher than the average for the big four, which is under 40 per cent.

Morrisons disputed this, saying it was puzzled about Kantar’s claims on promotions because “we don’t recognise their figures”.

Mr McKevitt said Morrisons’ basket sizes are smaller as it’s not fulfilling what shoppers want in terms of the products that are on offer.

“It’s a combination of that with the price. It’s something that Morrisons needs to address pretty quickly. It also needs to find a way of attracting new shoppers. It’s been a difficult couple of months for Morrisons,” he added.

However, analysts pointed out that Morrisons’ sales this summer were up against very tough comparatives. Over the three month period last year, Morrisons was the best performer of the big four.

Indeed, Morrisons said it was up against a particularly strong sales last year when it saw its best sales in nine years.

Analyst Clive Black at Shore Capital said analysts are not used to Morrisons “bringing up the rear”.

However, he said Morrisons’ performance is within Shore Capital’s expectations for the group’s first half performance.

Morrisons is up against extremely tough comparatives with last summer and this will work its way out of the system. The group has a strong management team and this should be seen a short term blip.

Mr Black believes Morrisons is continuing to improve and it will seek balanced and sustained earnings and dividend profit growth.

Despite this, there could be a dark cloud on the horizon, which is none of Morrisons’ making.

Retail Week believes that overseas investors could be looking at a takeover bid for Morrisons as a result of the weak pound, driven by ongoing uncertainty around Brexit.

The respected industry magazine said Morrisons is considered a prime candidate for a potential takeover bid from an overseas private equity firm, as its share price continues to waver and the weakness of the pound makes deals cheaper.

Earlier this week, pub chain Greene King was acquired for £2.7bn by Superdrug owner Li Ka-shing.

Mr Black said he is not suggesting Morrisons has had an approach, “but sure as eggs are eggs, there are a vast array of investors looking at stable UK businesses at the moment.”

If Britain does hurtle towards a no-deal Brexit and the pound sinks further, we should get ready to wave goodbye to some much loved British brands.

It’s a strange way to take back control and sovereignty.