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Morrisons’ boost from horsegate will be ‘short-term’

1 commentBy Lorraine Mullaney , 20-Feb-2013
Last updated on 20-Feb-2013 at 13:38 GMT

Morrisons’ gain from the horsemeat scandal is likely to be short-term: City
Morrisons’ gain from the horsemeat scandal is likely to be short-term: City

Morrisons’ bid to profit from the horse meat scandal will provide a ‘short-term bounce’ rather than a long-term turnaround, say City analysts.

The supermarket chain has reported an 18% rise in sales at its fresh meat counters since the horse meat crisis began, with an increase in sales of fresh beef burgers of up by 50%.

Morrisons ceo Dalton Philips said: “There’s never been a better time for consumers to buy fresh meat from sources they know they can trust. Because we work directly with farms (even owning our very own), our counters and expert staff can confidently offer the most reliable meat to consumers.”

The supermarket plans to use its status as “the largest fresh food manufacturer in the UK”  to drive its expansion into the convenience sector via its M Local stores. It announced the purchase of 49 Blockbuster stores this week (February 18), which follows its acquisition of seven Jessops stores earlier this year.

In a statement issued to FoodManufacture.co.uk, the supermarket said: “All Morrisons’ M Locals will have more than 100 lines of fresh fruit and vegetables as well as strong presence for fresh meat, fish and bakery.”

‘Not in the clear’

While agreeing that the supermarket’s vertical integration manufacturing model was now looking more sensible, analysts warned that Morrisons was still not in the clear.

Julian Wild, food group director at legal firm Rollits, said: “Unlike all of its competitors, Morrisons has a high level of vertical integration with manufacturing facilities, which has been out of step with the competition. That undoubtedly means it has more control over the sourcing of a large proportion of its stock.

“This may help but the supermarket still had a product withdrawal last week so it’s not the total answer. It has taken a lot of credit for being in a better position than many of its rivals but it’s not completely in the clear.

“It would appear that consumers have more confidence in buying from Morrisons meat counter than they have elsewhere. They may feel that Morrisons hasn’t been tainted by this. It’s going to be a short-term bounce. I’d be surprised if it’s of long-term benefit to them.”

Panmure Gordon analyst Phil Dorgan pointed out that rising inflation would put increasing pressure on consumers’ meat-buying decisions. He said: “They’re not going to stop buying all processed food because they can’t afford to do so.”

‘Late to the party’

Dorgan said the move into convenience stores was “not the solution”. Wild said Morrisons had a lot of catching up to do as it was “a bit late to the party”.

He added: “Whether it turns around their flagging market share remains to be seen.”

Analyst Shore Capital upheld its ‘sell’ stance on the supermarket’s stock.

A statement said: “Recently, Morrisons has also sought to make some ‘hay’, so to speak, from the processed meat scandal in the UK.

“That said, we believe most supermarkets have probably seen stronger fresh versus processed meat sales in recent weeks.”  

The analyst expressed concern regarding the Nielsen data for January, which reported: “a 2.8% decline in the value performance, against a 2.2% market growth”.

Shore Capital said it was very rare for a major British supermarket chain to record falling sales and suggested that its volumes could be down by high single digit percentage points.

It added: “This deterioration in trading is not, to our minds, because Morrisons does not have a foothold in the convenience or online markets, it is all about its core trading. And with its vertically integrated business model, falling total volumes can be expected to have a greater impact on margins as a result of negative operational gearing.”

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1 comment (Comments are now closed)

Words of Wisdom

What Shore Capital has stated is accurate. Morrisons needs to pay attention.

It should understand that even though it has found new confidence in the horse meat scandal, it only takes one localised scandal to break that confidence with ease.

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Posted by Peter Crolla
19 February 2013 | 22h14

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