Morrisons boss ‘could galvanise’ the retailer

By Michael Stones

- Last updated on GMT

Morrisons' new boss could 'galvanise' the troubled retailer, said Shore Capital
Morrisons' new boss could 'galvanise' the troubled retailer, said Shore Capital

Related tags Morrisons Brand

Morrisons new boss David Potts “could galvanise” the troubled retailer, according to City analysts less than two weeks after he took over the role of chief executive from Dalton Philips.

Commenting the day after Potts revealed five top executives wouldl be quitting the business, Shore Capital praised Potts’s “encouraging first steps”.

Analysts Clive Black and Darren Shirley said: “Mr Potts is someone that can possibly galvanise the forces for positive change in the organisation …” ​Such change was long overdue due to the scale of the erosion in sales, earnings and dividends suffered by Morrisons’ shareholders in recent years, they argued.

The scale of the challenge was reflected in Shore Capital’s downgrade of its pre-tax profit forecast for the retailer from more than £1bn in recent years to just £300M for its 2016 financial year.

Busy two weeks

Potts has had a busy two weeks since taking over the helm of Morrisons on Monday March 16. Early actions have included: inviting headquarters staff to join him on shop floors over Easter to listen to customers, and colleagues, reviewing customer feedback, investing £1M of his own money in Morrisons’ shares, ditching the retailer’s unpopular Intelligent Queue Management System and revealing the express check out of five board members from the business.

In a comment headlined “Shaking the tree”,​ Black and Shirley said the operational changes boded well for the retailer and should be welcomed by its staff.

But much remained to be achieved in order to restore the retailer’s finances. Topping Potts’s to-do list, Black and Shirley identified:  

David Potts' to-do list

• Simpify Morrisons’ proposition 

• Developing points of difference: vertical integration

• Review relationship between proprietary brands and own-label and rationalise stock keeping units

• Continuing search for cost savings. 

Source: Shore Capital

• Refining Morrisons’ proposition around simplification, with more to be done on price, the promotional offer and other features of the shopping experience

• Developing strong points of difference, in particular ‘Market Street’ and vertical integration, “so re-connecting with the best of the group’s heritage”

• Review the relationship between proprietary brands and own-label, own-label hierarchies and structures, stock keeping unit rationalisation and range and category reviews

• Continuing the search for cost savings. “In this respect there is much work to be undertaken on store operations, the manufacturing base, digitalisation and IT and so cuts to the cost base and improvements in working capital.”

While welcoming Potts’s early actions, Black and Shirley described them as “encouraging steps in a long journey ahead”.

Repeated its ‘buy’ advice

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

UK food retailing consultancy firm Grocery Insight agreed with the potential for improvement at  Morrisons' core stores. The retailer remains far behind industry standards as far as automation is concerned – impacting everything from shelf availability to inventory levels – said the firm’s Steve Dresser.

Also, competition from discounters remained intense – with Lidl communicating clearly on the quality and origin of its meat; traditionally one of Morrisons’ key differentiating factors.

But Potts’s appointment could upgrade Morrisons’ “reactivity levels”​ to match those of the best-in-class in the industry, said Dresser. Within a week of joining the firm, Potts listened to customers and ditched Morrisons’ “flawed”​ Intelligent Queue Management System.

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