Morrisons’ modernisation plan could hit sales

By Dan Colombini

- Last updated on GMT

Morrisons is currently looking to modernise its business through diversification into non-food, online sales and convenience stores
Morrisons is currently looking to modernise its business through diversification into non-food, online sales and convenience stores

Related tags: Morrisons, Asda

Morrisons’ plans to modernise its core business could hit growth at the multiple, according to city analysts.

Experts are worried that the move could leave it trailing behind its supermarket rivals. They also described Morrisons as being “the meat in an Asda-Tesco sandwich​” after suggesting that the firm’s tactics may be more about consolidating its position in the market.

Morrisons is currently looking to modernise its business through diversification into non-food, online sales and convenience stores, through trials of the M-Local sub-brand.

The firm is expected to roll out a number of smaller convenience stores this year following the successful opening of three similar stores last year.

Mellow thoughts

Clive Black, analyst at Shore Capital, said: “We harbour more mellow thoughts on Morrisons than we have for some time. This more deflated feeling towards the stock reflects our concern that the promise of self-improvement and diversification may not lead to the previously anticipated earnings outcome.

The focus of management's attention may now be really more about protecting what Morrisons has rather than robust earnings growth​.”

Black highlighted the strengthening performance of rivals Asda and Aldi. He also expressed concern that Morrisons would find it difficult to build revenues if market leaders Tesco performed in-line for 2012.

If we assume that after Tesco’s investment in its operating channels and its proposition that it performs in line with the market at the end of 2012 is successful, then Morrison and the others are likely to find it more difficult to build their revenues​,” Black claimed.

It is for this reason that we've talked about Morrison being the meat in an Asda-Tesco sandwich with Aldi for relish on top​.”

Full year results

The news comes after Morrisons today announced its full year results for the period ending January 29. Experts said the firm had “toughed”​ it out, to perform ahead of expectation for the year.

Morrisons reported like-for-like growth of 1.7% and an underlying profit increase of 8% to £935M for the period. The firm also reported profit before tax of £947M, up from £874M the previous year.

Ceo Dalton Philips remained positive about the firm’s performance despite the tough economic times. He also reaffirmed his faith in the group’s future strategy.

He said: “This has been Morrisons’ best year yet with another good financial performance and growth ahead of the market. Customers were having a tough time but we responded with a new M savers brand for budget conscious shoppers, promotions that customers understood, and industry leading service.

 “We know that 2012 will be tough, and we will be working hard to deliver even better value for our customers.  At the same time, we have ambitious plans for the long term development of the business, through new supermarkets, convenience stores and the development of our multi-channel capabilities. I am confident that Morrisons will make further progress this year.​”

 

 

 

Related topics: Chilled foods

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