Don’t neglect Morrisons’ core business, Sir Ken warns board

Speaking at the company’s 71st annual general meeting, the former chairman delivered a damning assessment of the supermarket group’s performance over the last three years.

The 80-year-old said: “Our record at the moment is one of price inflation, lower volumes and diminished levels of availability and a falling market share in the grocery trade.

“Staffing levels have been reduced in the stores in spite of longer opening hours, which results in a lower level of service for customers.

“I believe that we are witnessing the creation of a new Safeway with all the inherent problems.

“I believe the company is preoccupied with many other activities and I fear neglecting the core business is dangerous.”

The company’s disastrous takeover of rival Safeway in 2004 led to a string of profit warnings before the past management team managed to turn it around and successfully integrate the two businesses.

Under chief executive Dalton Philips, Morrisons is developing its fresh food offering, increasing food manufacturing operations, trialling the convenience store format and moving online following the acquisition of baby products firm Kiddicare and a stake in the US online retainer Fresh Direct.

In response to Sir Ken’s criticism, chairman Sir Ian Gibson said: “To some extent we are trying to do two things at once and that is stretching us.

“We are trying to invent and invest in tomorrow’s business and it needs to be tomorrow’s business because the business that exists now will not be different enough in some years to continue to occupy its position.”

Mr Philips told the AGM: “We are building for tomorrow but we have not forgotten about trading for today and that’s our key focus.”

After the meeting, Sir Ken told the Yorkshire Post: “It’s so vital that you preserve your main business.”

He added: “I’m just anxious that the company should prosper. There are a lot of people who depend on it for a living and seeing it growing and prospering is really what it’s all about.”

Asked how the current trading environment compared to the 1950s when he took over his parents’ market stall business, Sir Ken said: “Every era presents opportunities. You have got to be in the position and condition to make the best of it. If you’re a tough trader, it’s just right.”

Last month, Morrisons reported a one per cent sales fall for the 13 weeks to the end of April.

Some analysts said that once the effect of inflation has been stripped out, volumes may be four to five per cent down.

At the AGM, Sir Ken read out a letter he sent to the company in March 2009 in which he made a series of observations about the way Morrisons was being run.

In it, he questioned the use of external consultants to set executive remuneration and asked if this meant that the management did not understand the performance of the business.

He wondered if the company had scrapped an annual bonus scheme for general staff and said that the pay gap between the shop floor and senior management had reached its highest-ever level.

He said the rebranding exercise had been followed through with limited success and was “costly and confusing”.

He added that the head office at Bradford had become increasingly large, costly and lacking control.

Regarding trading policy, Sir Ken accused the board of developing “a total bout of plagarism” in adopting organic, fair trade, local and value concepts, which had the effect of making it harder to manage stores.

And he claimed that the estate strategy resembled “a good imitation of the Safeway formula” which the old management team had worked hard to drive out.

Of the letter’s contents, Sir Ken said: “Not much has changed.

“The points raised remain important for the future welfare of the company.”

At the start of the AGM, the chief executive Mr Philips told shareholders that the supermarket group had achieved a strong performance in a difficult economy in the last financial year.

Turnover rose 7 per cent to £17.66bn during the year ending January 2012, while profits rose 9 per cent to £690m.

Mr Philips said: “The consumer is very squeezed in terms of household budgeting. We used to say time is money, but now consumers are saying time saves money. They are investing their time in saving money.”