The latest news followed a string of damning announcements from the supermarket chain, including the damaging £176M loss for the year to February 2, reported earlier this year, which followed a £879M profit for the year before.
While not a surprise to City analysts, the latest news caused the supermarket’s founder Ken Morrison to go public in criticising the leadership of Morrisons’ boss Dalton Philips.
The management cuts – supposedly designed to improve customer service – were expected to lead to a flattening of management structures and simplification within stores. What wider implications they have, are yet to emerge.
However, analysts Clive Black and Darren Shirley from stockbroker Shore Capital questioned their effect on staff morale. Morale must be pretty much at rock bottom anyway at the moment, after the run of bad news emerging from the retailer.
The trading environment is proving particularly tough at the moment for Morrisons. Like-for-like sales fell by 7.1% in the first quarter of the current financial year, which spurred its decision to become a leaner and more price-value orientated grocer.
Shirley and Black warned that other supermarkets were likely to follow Morrisons in cutting their labour costs, as the sector attempted to adapt to structural changes in the grocery market. Depressed consumer demand was adding to the squeezed margins.
Asda announced in April it was consulting with 4,100 store managers, with a view to reducing its head count, said Shirley and Black.
“It is our central expectation that more jobs will go at the big supermarkets, with major initiatives expected to come with respect to head office headcount across the industry as well,” said Shirley and Black.
“We also believe that Sainsbury and Tesco UK will also announce, in due course, material productivity programmes involving labour shedding. Indeed, in a market suffering sustained weak demand and gross margin pressure, cutting the cost cloth accordingly is the key lever available to management to support margins and profits.”
Such internal cost cutting by the supermarkets comes as news emerges about the impact of the supermarket price war on suppliers from Food Manufacture’s annual reader survey. This found that increasing numbers of suppliers were being hit by mounting pressure from supermarkets to cut costs.
Ken Morrison, former chairman of the Morrisons supermarket chain, has been scathing in his criticism of the supermarket’s current leadership – particularly of its boss Dalton Philips.