Morrisons announces a further round of store price cuts

By Rick Pendrous contact

- Last updated on GMT

Morrisons' price cutting strategy is winning the praise of City analysts
Morrisons' price cutting strategy is winning the praise of City analysts

Related tags: Brand, Aldi, Milk

Morrisons’ price cuts, announced last month, are the latest round in its strategy to become more competitive by investing £1bn in price reductions over three years.

The cuts, which Morrisons claims will be largely self-funded, are across own-label and proprietary brands and include staples such as sugar, milk and dairy products.

According to City analysts Clive Black and Darren Shirley at Shore Capital, some of the cuts are making certain categories demonstrably cheaper, such as own-label dried pasta, while others are more “catch-up”​ in nature, such as own-label milk: four pints cut to 100p from 139p, or Kellogg’s Corn Flakes, the price of which has been reduced by Tesco.

Cuts have also been made to Hovis and Nescafé lines.

‘Yet to be convinced’

“Whilst we are yet to be convinced of the virtues of ‘Match & More’, it is also gaining a little more coherent in-store support,” ​said Black and Shirley.

“Morrisons’ work is part of a process to recover profitability and, in particular, recapture lost ground to the discount grocers.”

However, the analysts expected limited range discounters, Aldi and Lidl, to continue to gain market share against the major multiples for the foreseeable future in the UK, not least driven by new stores that they plan to open. Aldi, alone, plans to open around 70 in 2015.

Sustain price leadership

“However, what we call the ‘free lunch’ has, we believe, come to an end for the discounters with the superstores fighting back on price differentials in key lines,”​ they said. “Hence, whilst Aldi and Lidl may indeed sustain price leadership, their differential is not likely to return.”

Narrowing the price differential is a key strategic goal of the superstore operators in the UK. In doing so they will be hoping that they can extol their broader product offering and services, factors the discounters cannot easily replicate, they added.

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