Morrisons vows no gimmicks in tough battle for customers

MORRISONS has warned of tough times ahead as tax increases and public spending cuts hit customers' wallets.

Despite the pressure on consumers, the Bradford-based company is upbeat about its prospects in 2011.

"I'm optimistic for Morrisons," said chief executive Dalton Philips. "We have got a great business. I'm realistic about the economy, it's a tough market. Large numbers of customers are going to come under pressure on household budgets. It's going to be tough."

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He added that he expects the market to remain very competitive as the UK's leading supermarkets battle it out to offer the cheapest prices.

"We've said to customers you will get the best value at Morrisons," he said.

"Customers can save money with us and there are no gimmicks, you don't have to go online, you get it at the till."

Morrisons, the UK's fourth biggest grocer behind market leader Tesco, Leeds-based Asda and Sainsbury's, said underlying like-for-like sales rose by one per cent in the six weeks to January 2.

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This was below the 1.3 per cent rise reported in the group's last quarter, due partly to a much stronger comparable figure the same time the year before.

The one per cent growth was above analysts' forecasts of a 0.6 per cent increase.

Analysts had expected Morrisons to be hit by its exposure to the North, which is bearing the brunt of the public sector job cuts.

The North has also suffered far more than the South from the wintry weather conditions which hit many retailers in the run-up to Christmas.

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Mr Philips said it was almost impossible to quantify the impact of the wintry weather, but the group did not shut any stores due to the heavy snow and freezing temperatures.

He added that Morrisons has seen an increase in customers trading up and the group's premium own brand, The Best, saw an improvement in trading over the festive period.

"This Christmas we had products we didn't have last year," said Mr Philips. "Smoked salmon sales were up 55 per cent. I'm pleased with the Best, there is an opportunity to broaden the range."

The group sold over 200,000 Panettone, a luxury festive cake originally from Milan, which was made in store everyday by the group's own bakers and sold for 1.99 against the branded price of 3.99.

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It also saw an increase in customers using its "collector card" scheme which offered regular customers money off their Christmas shopping. Customers who spent 40 or more a week in the run-up to Christmas received a 25 voucher off the price of their Christmas shop.

Morrisons, which runs over 430 stores and unlike major rivals produces 50 per cent of the food it sells, said it remains comfortable with analysts' average profit forecast of about 860m for the year to January 31.

Morrisons' finance director Richard Pennycook said the group is on track to report the biggest growth in profits out of the big four supermarkets.

The group said that recent data, which shows it losing market share, reflects the fact that its rivals have introduced more new space recently.

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Last week data released by market researcher Nielsen Company showed the chain's market share dropped to 10.8 per cent in the 12 weeks to December 26, compared with 11 per cent a year earlier.

Having outpaced sales growth at rivals for much of the past two years, Morrisons has slipped back in recent months as the boost from its purchases of the Safeway chain in 2004 and Co-op stores in 2009 has faded.

Mr Philips, who joined in March, plans to boost profits by expanding into fast-growing areas like convenience stores and internet shopping.

The group's shares closed up 0.4 per cent last night, a rise of 1p to 271p.

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Morrisons said it served an average of two million more customers each week over the Christmas period than five years ago.

Kate Calvert, retail analyst at broker Seymour Pierce, said that, after a strong period, Morrisons is now experiencing a more "normal" rate of growth.

She added: "We suspect Morrisons' performance will turn out to be the weakest of the majors, with Sainsbury's due to report on Wednesday and Tesco on Thursday."

Mr Philips played down speculation Morrisons might bid for online delivery company Ocado, saying it is focused on testing its own online business.

Group reports small inflation rise

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Morrisons reported a small uptick in grocery price inflation over Christmas and said the trend is set to continue this year.

It said that with consumers struggling to cope with rising taxes and public spending cuts, the onus will be on retailers and suppliers to become more efficient to offset the rising costs.

Morrisons' chief executive Dalton Philips said he thought food price rises would be relatively modest this year compared with the surges seen in 2008-9.

Market researcher Nielsen said last week that Britain's grocers had enjoyed a good Christmas performance, with Sainsbury's leading the top four players.

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