Many of you have been watching markets for many years.  Therefore, you will recall when the redoubtable and ebullient Sir Ken Morrison first made overtures to buy Safeway in 2004.  This was a bold move. Morrison was a Bradford based supermarket, which had no presence south of the Trent. In fact, a compass may have been required by Morrison executives to find the way to Safeway’s head office in Hayes Middlesex.  This acquisition made perfect sense as it gave the joint venture access across the whole of the UK, with considerable cost cuts. However, the regulatory bodies dragged its feet for 15 months and all but trashed the deal.

After the conjugation and some considerable level of disruption, Marc Bolland was persuaded to leave Heineken and join Morrison as CEO in 2006. His sojourn until 2010 was hugely successful.  Notwithstanding that fact, for Mr Bolland, a very ambitious person, ‘the grass was always going to be greener on the other side.’ So away he went to seek his fortune at M&S.  His salary at Morrison was hardly shabby – £975k.

He was replaced by Dalton Phillips, a Canadian from the Walmart stable. His tenure was not a success, as Morrison was unsuccessful with its convenience stores and with its policy to add on ‘bells and whistles’, such as baby goods, which were not part of the core operation. Mr Phillips had to go. Richard Pennycook took hold of the reins – pro-tem – until the appointment of Dave Potts, who not only cut his teeth on Tesco’s branding iron but remained there ‘almost man and boy’ for over 30 years! He joined as CEO at a very difficult time and his leadership has been very effective.

2018 was a challenging year for retail, as it has been for all supermarkets with relentless pressure from Aldi and Lidl with aggressive discounts and a stack ‘em high sell ‘em cheap’ policy.  These two German operations, huge in the Motherland – each with about 9000 outlets, have set down their stall in the UK with a vengeance. The fall in the Pound from $1.40 to $1.25 have made foodstuff expensive and profit margins thin. Morrison share price has drifted by 20% since August.

Today’s trading statement was slightly disappointing in comparison to this time last year, when like for like sales were up 2.1%. In the nine weeks to 6th January 2019 like for like sales increased by just 0.6% – not disastrous but hardly a mouth-watering achievement! Morrison discounted 900 products by an average of 20% over the last trading period. This of course could damage the bottom line. Now that inflation has abated, even if only temporarily, margins to the business may return, but all supermarkets will need to be on top of their game in this very competitive environment.  At 12 noon shares had fallen 2.9% at 213.10.


David Buik  

Core Spreads

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