Morrisons playing the ‘smart game’ as the retailer’s recovery picks up speed

Trevor Strain, chief financial officer of Morrisons, with one of the Amazon Lockers being rolled out across stores
Trevor Strain, chief financial officer of Morrisons, with one of the Amazon Lockers being rolled out across stores
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All eyes will be on Morrisons today as it is expected to announce its third consecutive quarter of like-for-like sales growth as the supermarket ​returns to health under chief executive David Potts.

Analysts believe the Bradford-based chain will be the strongest of the big four in ​terms of ​like-for-like sales in the first half.

After announcing a raft of new price cuts​ to slash selected meat and poultry prices by 12​ per cent, Morrisons ​could announce​ plans to make products for other retailers.

U​nlike its rivals​, Morrisons produces a lot of its own food in what is called a ‘farm to fork’ production line which means it has skill sets that its rivals lack.

Now there is talk that it might use this in-house capacity to produce food for other sales outlets. This would produce economies of scale and provide lucrative new revenue streams.

​​Another interesting and potentially lucrative tie-up could be with petrol forecourts to create a ready made convenience chain.

Morrisons is trialling food in five petrol stations owned by Motor Fuel Group, the UK’s second largest independent forecourt operator. The shops, which are all above 1,200 sq ft, are branded as Morrisons.

If the pilot is rolled out across the estate this would give Morrisons a sizeable ready-made convenience store chain without the expense of its previous operation​.

Previous management wasted millions buying up a convenience estate that was in the wrong place and it was sold off by Mr Potts for £25m. The chain was sold to My Local, which went bust three months ago.​

The tie-up with Motor Fuel Group is a no risk venture – if the trial is successful Morrisons gets access to 373 convenience stores with none of the hassle and expense of buying sites.

Analysts at Barclays estimate that Morrisons’ like-for-like sales will rise 1.1​ per cent​ ​in​ the second quarter, with underlying pre-tax profits rising from £117​m to £150m in the first half.

Analyst James Anstead, at Barclays, said: “The company has clearly outperformed sales expectations and may well be the strongest of the big four in like-for-like terms in the first half.”

All of the big four supermarkets – Tesco, Sainsbury’s​, Asda ​and Morrisons – have been cutting prices in a bid to better compete with German upstarts Aldi and Lidl.

David McCarthy, analyst at HSBC, said Morrisons’ price cuts “make sense”.

“Morrisons can step up output relatively quickly and at a lower cost than most of its competitors so it makes sense to cut prices in areas where it has these advantages.​ ​Morrisons continues to play a very smart game​,” he said.​

The group’s resurgence comes after Mr Potts took the helm last year, following the removal of former boss Dalton Philips, and embarked on a number of changes to turn around the firm’s fortunes.

Mr Potts has signed a better deal with Ocado and a landmark agreement with online giant Amazon as Morrisons returns to its former proud roots.