The effect of Morrisons’ price cuts, announced last week, cannot come soon enough for the retailer, after it reported an 8.2% fall in like-for-like sales in the 13 weeks to 4 May.
Excluding fuel, like-for-likes fell 7.1%, Morrisons said in a trading update this morning.
Total sales were down by 5.6% (4.2% excluding fuel).
Chief executive Dalton Philips insisted the plans set out in Morrisons’ annual results in March were “on track”.
“The reaction of our customers to the 1,200 ‘I’m Cheaper’ price cuts we announced last week has been very positive,” he said. “Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers.”
Morrisons said its outlook for the full year of underlying profit before tax in the range of £325m-£375m was unchanged, despite the “challenging” trading environment. In March, it warned its price-cutting strategy would result in its profit margins almost halving for the current financial year.
“With a streamlined range in ambient and more focused promotions, Morrisons is enacting some sensible measures to create a more cohesive offer”
Bryan Roberts
During the first quarter, the retailer opened two new supermarkets and 11 M Local c-stores. It is on schedule to have 200 c-stores by the end of the year.
Morrisons said its investment programme in IT infrastructure was on track, targeting savings of £1bn over the next three years.
Online deliveries from Morrisons.com, which launched in January in Warwickshire, will extend to the London area from next Monday (12 May), Morrisons added. The online service is on target to reach up to 50% of UK households and realise £500m in sales by the end of the year, it said.
Kantar Retail’s Bryan Roberts backed Morrisons’ price cuts to help stem the flow of shoppers to the discounters. “Its communications around the price campaign have been by no means trouble-free, but the messaging is a decent mix of price and quality and could help shore up the chain’s overall value proposition,” he said.
“With a streamlined range in ambient and more focused promotions, Morrisons is enacting some sensible measures to create a more cohesive offer. Clearly, a lot will depend on how competitors react to the Morrisons price offensive, but we retain a degree of underlying optimism that, after what will be a tricky 2014, a leaner and stronger Morrisons will be back on track in 2015.”
David Gray, retail analyst at Planet Retail, said Morrisons was caught between a rock and a hard place – fending off the discounters and upmarket stores such as M&S.
“The price investment announced last week is a good start – although we doubt the chain will be able to match discounters’ pricing long term without impacting margin – something investors may be unwilling to tolerate for long,” he said. “Other differentiating measures will be needed, such as investment and innovation in product ranges. But the lack of a loyalty scheme makes identifying precisely where to channel investment all the more difficult. The launch of such a scheme later this year will help address this key problem, albeit somewhat belatedly.”
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