Morrisons has announced its tenth consecutive quarter of positive sales growth, reducing fears that it could be the biggest loser from Sainsbury’s proposed £7.3bn takeover of Asda.
Bradford-based Morrisons said like-for-like sales, excluding fuel, rose 3.6 per cent in the 13 weeks to May 6. This exceeded analysts’ forecasts of 2.8 per cent growth.
David Potts, chief executive, said the star performer was the new “Wonky“ brand of low-priced, quality fruit and vegetables that minimise food waste and utilise more of the crop.
“Our Wonky brand goes right to the heart of Morrisons as a food maker,” he said.
“We are selling smaller apples and mis-shaped carrots. Once the blueberry is in the smoothie, who can recall its size?”
Morrisons said that its unique position as a food maker as well as shopkeeper means it can deal directly with farmers and growers.
The UK’s fourth biggest grocery chain defied expectations of a slowdown after the sector was battered by the Beast from the East cold snap earlier this year.
“We sold 6,000 sledges and then we sold a million ice-lollies five weeks later,” said Mr Potts, referring to the heavy snow earlier in the year followed by the recent heatwave.
“The threat of snow is not a bad thing as people stock up. It’s not so good when it snows, but then people stock up again.”
In addition to Wonky, Morrisons recently launched “Savers“, its lowest-priced own label range, including 300 ambient, chilled and frozen items.
The firm also said its “Nutmeg“ clothing brand is proving popular with customers, and the new Womenswear range is now in almost 130 stores.
Morrisons said its expectations remain unchanged and it is confident of another strong year ahead.
Analyst Clive Black at Shore Capital said: “Morrisons is a group that is increasingly in control of its own destiny, robustly positioned for any Asda-Sainsbury’s combination (should it happen).”
Morrisons declined to be drawn on last week’s £7.3bn bid by the UK’s biggest grocer Sainsbury’s for No. 3 player Asda - a deal that would overtake market leader Tesco.
Asked whether Morrisons will seek to influence the Competition and Markets Authority (CMA) over the deal, Mr Potts said: “It’s early days in the proposed merger. The CMA will invite comments from interested parties and I’d expect Morrisons to be one of those.”
He declined to say whether Morrisons will step in to buy Sainsbury’s or Asda stores if the CMA demands a sell-off.
“We wouldn’t comment on speculation,” he said.
“We welcome vigorous competition here in Britain.”
Morrisons said it is now open for business as a wholesaler. It started supplying its new partner McColl’s through a rolling programme of around 25 stores per week during the first quarter. These stores receive a full fresh, frozen and ambient offer from Morrisons, including both brands and the new Safeway range.
In addition, it is supplying some McColl’s stores with tobacco and ambient products slightly earlier than it initially planned.
Overall, the group’s wholesale supply initiatives contributed 1.8 per cent to like-for-like sales and it is on track for targets of £700m of annualised sales by the end of the year and £1bn over time.
Mr Potts declined to comment when asked if Morrisons, which has a UK market share of 10.5 per cent, would consider its own bid for Sainsbury’s or seek a relationship with Amazon beyond an existing wholesale deal that has been running for two years.
“You can see from the numbers that the approach the company’s taking – colleague-led, customers onside, re-connecting the business with its core and then becoming more relevant to more people in Britain - appears to be striking a chord,” said Mr Potts.
“So we’re very confident in the year ahead.”
Bernstein analyst Bruno Monteyne, who has an “outperform” rating on the stock, said: “These are a strong set of results that will help to quell short-term worries over Morrisons’ position in the market versus Tesco and Sainsbury’s-Asda.”
The Sainsbury’s/Asda’s deal, if cleared by regulators, is not expected to complete until the second half of 2019.
Analysts said Morrisons could benefit from the distraction of the deal to Sainsbury’s and Asda’s operations in the intervening period.
The £12bn merger of rivals Sainsbury's and Asda would spark one of the biggest shake-ups in the supermarket sector since Morrisons itself took over Safeway 14 years ago.
The tie-up would create a supermarket titan bigger than Tesco with revenues of £51bn and a network of 2,800 Sainsbury's, Asda and Argos stores.