Morrisons should make manufacturing ‘a weapon’

By Michael Stones contact

- Last updated on GMT

Morrisons should 'make manufacturing a weapon' to help it wage supermarket price war
Morrisons should 'make manufacturing a weapon' to help it wage supermarket price war

Related tags: Bbc radio 4, Bradford

Morrisons’ new chief executive David Potts should make food manufacturing “a weapon”, as he battles competition from the other big four retailers and the hard discounters, according to a leading City analyst.

Potts, who starts work today (March 16), should use of the retailer’s vertical integration to turn realise its full potential as “a demonstrable virtue”,​ said Clive Black and Darren Shirley.

“In our view, Mr Higginson​ [Morrisons' chairman] characterised it well from a strategic perspective; if it is a weapon that can be used to differentiate to customer benefit then it is worthwhile,”​ said Black and Shirley.

“If it is not, then other paths may have to be explored. We sense that Mr Potts will seek to extol vertical integration, 'Market Street' and Morrison's Yorkshire and British heritage to maximum effect.”

Andrew Higginson said last week the retailer should highlight its strong food manufacturing connections. “Morrisons was at its most potent when it was the fifth-­placed player and Sir Ken ​[Morrison] was running the business,”​ he told BBC Radio 4’s Today​ programme on Thursday March 12.

‘Cornerstone of the business’

“It’s great strengths are around fresh food, the service quality of the food, the great prices. The cornerstone of the business being fresh – whether that’s the butchers, the bakers, the fishmongers. And all of that is still there and just needs to be revitalised. That will remain the cornerstone of the business, we need to be that quirky Morrisons again with the focus on fresh.”

Potts was expected to back the general recovery strategy set out by the retailer: focusing on improving the store performance, helped by self-funded price cuts coupled with improvements to the proposition. Therefore, the analysts expected short-term profit expectations to be considerably lower than previous forecasts. “The key point here being that Morrisons is expected to take profits further backwards to go forwards.

Morrisons' profits

“The key point here being that Morrisons is expected to take profits further backwards to go forwards.

Shore Capital

In good hands

Shore Capital cut its 2016 current pre-tax profit (CRPT) forecast by 30% to £300M. It also lowered its 2017 CPTP by 30% to £334M, with an earnings per share of 10.9p. But Black and Shirley concluded the retailer was in good hands. 

“There is no short term or easy fix to Morrisons”​ they said. “However, we believe it does now have the right strategy and leadership team and a balance sheet resource that means that it can possibly re-commence shareholder friendly initiatives before its peers aided by a high freehold participation.”

Shore Capital retained its ‘buy’ advice on Morrisons’ stock.

Last week Morrisons posted pre-­tax profit down 52% to £345M​ for the full­ year to February 1 and axed 380 jobs with the closure of 23 convenience stores. It was the retailer’s worst profit performance for eight years.

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