Morrisons stalls in face of changing market

The Bradford-based retail giant has been criticised for going too upmarket and raising prices on a yo-yo basis at a time when Aldi promises to be £28 cheaper a week, claiming to save shoppers over £1,400 a year.

At the same time Morrisons has been hit by a price promise by arch rival Leeds-based Asda to be 10 per cent cheaper than its competitors.

To add to these woes, Morrisons has only recently introduced online shopping and this will take a number of years to become profitable. It is also new to the convenience market and trails its rivals.

Recent results by all the major supermarkets show that normal sized stores are losing sales while both online and convenience are showing double-digit growth.

The traditional notion of a weekly supermarket shop has been replaced by top-up daily shopping and bulk-buying on the internet.

Morrisons reported underlying profits of £785m in the year to February 2, its lowest earnings in five years, but this fell to a £176m loss after costs of £900m wiped out profits.

Morrisons, one of the big four supermarkets alongside market leader Tesco, Asda and Sainsbury’s, expects to make an underlying pre-tax profit of £325m to £375m over the coming year – half the level analysts had expected.

In a bid to turn itself around, the company has announced plans to reduce its cost base by £1bn through operating improvements and lower capital spending.

Under-pressure chief executive Dalton Philips said the strategy was a “bold and comprehensive” response to the challenge presented by the discounters.

John Ibbotson, director of consultants Retail Vision, believes that challenge is more serious than anyone had initially realised. “The middle is shrinking and it will keep on shrinking. It’s hitting Morrisons the worst because their position is worst,” he said.

Last month Morrisons announced plans to slash the price of 1,200 everyday items by up to 60 per cent.

The grocer said prices on popular branded and own-label products will fall by an average of 17 per cent.

Mr Philips insisted he was the right man for the job as he unveiled a new television advertising campaign with the slogan “I’m your new cheaper Morrisons” as the retailer attempts to return to its value credentials.

The retailer has also announced plans to launch a new website that will enable customers to check prices over the past year.

Mr Philips said the 1,200 price cuts will resonate with irregular Morrisons shoppers as the discounters offer only 1,300 products altogether.

“This is not a temporary skirmish. The days of loyally visiting your favourite supermarket to do all your weekly family shop are fast disappearing,” he said.

“I’m absolutely convinced that there is a structural change going on in this market. We’ve seen what happened to the airline sector – 50 per cent of it is now discount. It won’t turn back.”

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