Humiliating as the announcement was - explaining his departure to the media in front of the very people who had sacked him - it was hardly a surprise that Morrisons CEO Dalton Philips got the boot: he had been under fire for three years. And even before the disappointing Christmas trading period that appeared to herald his demise, he had put his house in Harrogate on the market. Nonetheless, it marks the end of half a decade in which Philips oversaw momentous change. So how will history judge the Irishman’s time in Bradford?
Has the new strategy failed?
New chairman Andrew Higginson, the man who in effect pulled the trigger, stated this week that the value strategy implemented by Philips last May was essentially the right one. But a new broom was needed, he said, to execute the plans and drive sales harder. So was it a case of too little too late? Or has he paid for his mistakes of the past?
Despite Morrisons shares plummeting by 36% since January 2010, there is still some sympathy within the City for Philips, in terms of the state of the business he inherited, and a belief that he was overtaken by the seismic changes in grocery that emerged a couple of years after he joined.
“This is an industry in turmoil and has seen off a number of other CEOs already,” says Shore Capital’s Clive Black. “When he started it was a difficult situation with a lot of features that needed to be dealt with - fundamental modernisation of infrastructure as well as looking at convenience and online.”
Having said that, Black acknowledges that “from a finance perspective, history won’t look kindly on his time at Morrisons” as profits collapsed in the past three years.
So what were his biggest achievements at Morrisons?
Until last year, Morrisons staff were managing stock using the same pen and paper ordering system the retailer had employed for decades. Every night, cash office staff would count in-store takings by hand.
And if the success of the retailer’s moves into the worlds of online grocery and convenience are open to debate, his upgrading of systems including the forthcoming sales-based ordering could yet prove his most significant contribution, says Steve Dresser, a blogger and consultant.
“The IT upgrade was due to take three years under Bolland (Philips’ predecessor). Eight years on and it’s still rolling out. But the introduction of sales-based ordering will help efficiency measures,” says Dresser, adding that recent moves such as the Match & More price-matching scheme and loyalty card, as well as greater vertical integration, are also examples of how Philips has improved Morrisons. “These are all bits that are sadly not necessarily going to be benefited from now but for the future make Morrisons more agile in the modern world.”
Where did it all go wrong?
“Clearly when you make decisions there will be some wrong ones but I like to think there were more right than wrong,” Philips argued this week.
But it is the scale and high-profile nature of some of the wrong turns that look to have cost him in the end. “I think the overall point here is a lack of focus on Morrisons’ core store business. This continues to be where Morrisons generates the vast majority of its sales and profits,” suggests Planet Retail analyst David Gray.
Black agrees. But rather than a lack of focus, it was the fresh format strategy for these stores that will go down as his biggest mistake, he argues.
After a successful start leading up to delivering record profits of £947m in 2011/12, it seemed Philips could do no wrong and was very much the industry darling. It was at this time he unveiled his vision for the core Morrisons store estate - which to be fair was being labelled by many as tired.
His vision was the ‘store of the future’ programme or ‘fresh formats’ as they became known. Characterised by a wide range of exotic fruit & veg including truffles, samphire and okra and the now infamous mist tables, the format would not have looked out of place in a Whole Foods or even his former stomping ground at Loblaws. But to the core Morrisons shopper they were a huge turn-off.
“Despite being well-meaning,” says Black, “fresh formats were an aspirational disaster. He tried to turn Morrisons into a neo-Waitrose and failed. It caused the loyal customers to leave and didn’t attract the new shoppers it wanted. This set Morrisons back years and it will take a long time to win these customers back.”
Other high-profile mistakes included plans to turn online baby goods company Kiddicare into a bricks & mortar retailer; the terms of the online deal with Ocado; and the locations for its fledgling convenience chain. But taking Morrisons upmarket at a time when family budgets were under increasing pressure and the discounters were beginning to encroach on his turf was a grave error of judgement. He even turned down the chance to buy Iceland and create a ready-made discounter format.
But surely Philips learned his lesson?
Last May, Philips did acknowledge that something had to give and announced a major pricing initiative.
Morrisons permanently cut the price of 1,200 everyday items by an average of 17%. The move was a major rebasing of the retailer’s pricing - effectively halving profits for the current financial year.
Black gives Philips credit for his “volte-face” and believes “taking Morrisons back to the future” to become a value-led grocer with a focus on fresh food through its Market Street is the right way to go.
Sales continue to fall but the rate of decline has slowed as have other metrics such as item per basket and number of transactions. “It’s clear the strategy down the line will bear results - they’re nine months into a three-year plan - but it will need adjusting,” adds Dresser.
So how will Philips be judged?
Black calls Philips a “gentleman and genuinely decent person.” Bryan Roberts, Kantar director of retail insights, believes Morrisons is in better shape and is “not the basket case some observers would have you believe.” But whether you agree with his decisions or not - and Philips fell out with a number of former senior execs - it seems opinions on his legacy are as divisive as the man himself.
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