We're still beating our rivals, says Morrisons despite drop in growth

The Bradford-based group blamed a lack of food price inflation for the modest 0.8 per cent increase in like-for-like sales during the 13 weeks to May 2.

This was down from a 4.8 per cent increase in the last three months of 2009.

Morrisons' finance director Richard Pennycook said the group is ahead of its rivals.

"We are growing ahead of the market," he said. "The market itself has come down a long way, inflation has come out, but we're ahead of our rivals by a nose."

He predicted that if Morrisons' underlying sales growth is coming in at under one per cent, some of the group's rivals will be in negative territory.

"There will be a lot of like-for-like sales figures that are negative," he said, refusing to be drawn on which of its rivals are lagging behind.

Collins Stewart analyst Greg Lawless said the weak Morrisons figures suggested the overall UK grocery market is "barely flat" and that underlying sales are perhaps falling at both Asda and Sainsbury's.

Other analysts were disappointed that the Morrisons' sales growth was so modest.

"Morrison is no longer outperforming the sector to the degree we have become accustomed to over the last two years," said Citi's Alastair Johnston.

Analysts' had expected Morrisons' first-quarter underlying sales to come in between flat and up three per cent.

The group's shares closed last night down 3.2 per cent, a fall of 9p to 269.8p.

UK supermarkets are all suffering from a steep fall in food price inflation, although there are signs this will pick up as the year progresses.

Mr Pennycook said that in the short term inflation should stay as it is, but said this was good for consumers at a time of economic uncertainty.

"We expect the economic environment will be challenging and value will remain a high priority for customers," he said.

"We always anticipated that 2010 would be particularly challenging for the consumer. The high price of fuel is hurting people. They are having to spend an extra 15 a week on filling their cars."

He dismissed a recent promise by Leeds-based rival Asda that it will guarantee the lowest prices on the high street, saying that Morrisons' weekly shopping basket is cheaper than Asda's.

Morrisons said a basket of branded goods including Birds Eye fish fingers, Philleas Fogg crisps, Smirnoff vodka and Dettol handwash, would cost 22.55 at Morrisons, 10.39 less than it would cost at Asda.

Asda argued that Morrisons had put together a basket full of items on special promotion.

Talking about the election, Mr Pennycook said consumer confidence has been fragile and customers are cautious because of worries about the household budget. "We are not sure we expect any big change in behaviour after the election. People are already being cautious," he said.

Retailers have expressed concerns that steps to cut government borrowing, like higher taxes and public spending cuts, could hit

consumer spending in the months ahead.

Mr Pennycook said Morrisons is well placed to cope, thanks to its focus on low prices and promotions such as 'price crunch' week when the group lowers prices on around 3,000 products.

Analysts expect Morrisons to make an underlying profit of 870m for the year to January 2011, up from 767m.

Analysts are hopeful that new chief executive Dalton Philips, who joined in March, will unveil an ambitious growth plan.

Mr Pennycook said Mr Philips is immersing himself in the business and has met all of the group's 400-plus store managers, as well as spending a week at a store in Harrogate.

He will give his initial thoughts on the group alongside interim results in September.

Mr Pennycook refused to say whether he would consider the newly vacated post as M&S finance director following the departure of Ian Dyson earlier this week.

"I love Morrisons, I've consistently said that. It's a business that's in great shape," he said.

Asda lagging behind

Asda is struggling to increase its share of the UK grocery market as rivals Tesco, Sainsbury's and Morrisons benefit from rising demand for premium ranges, according to the latest data.

Market researchers Kantar Worldpanel said sales at Britain's grocery outlets rose three per cent year-on-year in the 12 weeks to April 18, down from 3.6 per cent a month ago.

Growth was held back by lower food price inflation, which dropped to 1.4 per cent from 1.8 per cent a month ago. Morrisons was the best performer of the country's top four chains, with sales up 6.6 per cent, echoing earlier findings from market researchers Nielsen.

Sainsbury's followed on 4.1 per cent, ahead of Tesco on 3.7 per cent and Asda on 2.5 per cent. Asda's performance comes despite a coupon scheme aimed at boosting sales after Christmas.

Kantar said the chain, which has a reputation for low prices, could be suffering from signs shoppers are treating themselves again after a deep recession.