There’s method to Morrisons' Safeway ‘madness’

Is David Potts insane? That’s the question Albert Einstein might have asked this morning on discovering the Morrisons CEO is bringing back the Safeway brand.

Einstein defined insanity as “doing the same thing over and over again and expecting different results”. And you’d think that Morrisons would want nothing more to do with the name Safeway ever again.

Buying the 479-strong Safeway chain for £3bn in 2003 led to deeply troubled times for the buoyant Bradford-based supermarket. Just the mention of Safeway will send chills down the spine of anyone at Morrisons who remembers what happened when Sir Ken fought off Tesco, Asda, Sainsbury’s (and Philip Green) to buy it.

The chaotic integration of the two operations led to a series of profit warnings and Morrisons plunged into the red for the first time in its history. You could argue it still has the hangover.

So is David Potts mad to bring Safeway back, even just as a brand?

Given the context, combined with the freedom to dream up any brand he liked, opting for ‘Safeway’ does feel like a regressive choice that’s tempting fate.

But Clive Black, analyst at Morrisons’ house broker Shore Capital, cheered the decision, saying: “Hooray for the return of Safeway… an eminently sensible move to our minds, reflecting the warm heritage and feel that this much-liked label had in days gone by.”

It’s a nostalgic, rose-tinted assessment. But questionable branding choices aside, the overall strategy announced this morning sounds perfectly sane.

Morrisons will develop hundreds of new ‘Safeway’ products for wholesale and convenience customers, which fits perfectly into its burgeoning manufacturing operation and wholesale strategy.

No doubt the City will approve of another canny move by the man who took the helm of Morrisons in 2015 and has made a series of decisive moves that have taken Morrisons back from the brink (and landed Potts a £1m bonus in May for his efforts).

Potts’ work with Amazon is a case in point. In 2013 Morrisons was an online ingénu, seduced into an expensive (£216m) and restrictive 25-year contract with online experts Ocado. Now Potts is an enthusiastic participant in an online grocery ménage à trois with Ocado and that other online expert, Amazon.

First, in February 2016, he announced a deal to supply Amazon with thousands of wholesale groceries. Later that August he renegotiated that infamous Ocado contract to make it far more balanced. Then last week Morrisons commenced one-hour delivery on groceries using Amazon Prime Now, leaving Ocado cuckolded and rivals Tesco and Asda stuck in the mud (Sainsbury’s, which has been talking a great online game for a while now, launched a ’Chop Chop’ smartphone app last month which also delivers groceries inside an hour).

On a wider level, earlier this month Potts reported a fourth consecutive quarter of like-for-like growth, with a rise of 1.6% for the 13 weeks to 30 October. Stores are being ripped up and refreshed, new lines and ranges are being introduced (including the successful The Best premium range) and petrol prices are being cut. Throw in this latest development and it’s all good momentum for Morrisons with Christmas just around the corner.

And it suggests that on current form, David Potts is not insane, but inspired.