Morrisons continues l-f-l growth – but faces uphill struggle in the face of grocery mergers.
With the Sainsbury’s-ASDA merger hogging the limelight, Morrisons’ welcoming Q1 results this morning illustrated why it may also be an attractive target for investors and large conglomerates alike. Non-fuel sales growth increased year-on-year, stemming from Morrisons’ ability to more easily navigate inflationary pressures due to its vertically integrated supply chain. However, this quarter’s l-f-l sales increase saw significantly more reliance on the wholesale division, with retail only contributing half of the 3.6% l-f-l gain (compared to 88.2% for the same quarter last year).
At its core, Morrisons’ strategy is the right one. Store openings continue at pace (two over the quarter), and is appealing to eco-conscious shoppers through its in-store plastic reduction (aiming for all ownbrand packaging to be reusable, recyclable or compostable by 2025) as well as price-driven consumers through its “Wonky” brand of low-priced fruit and veg and new cheap “Savers” own-brand range of 300 products. Furthermore, the “Nutmeg” clothing line continues to gain traction, and its womenswear range is now available in 130 stores.
But CEO David Potts’ “Fix, Rebuild and Grow” turnaround strategy will not be enough to stave of the threat of Sainsbury’s-ASDA, where increased international buying power (particularly through the support of backstage giant Walmart) and significantly wider store network will eventually see the UK grocery market converge towards a Tesco-Sainsbury’s duopoly. Recent news regarding a botched Amazon approach for Waitrose shows that the US online behemoth has its eye on the UK F&G market – and Morrisons may be a viable target, given its already existing “Amazon at Morrisons” delivery partnership.
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