Asda threat looms large for Morrisons
DESPITE the improving numbers at Morrisons, it is still “hard to believe” that the retailer is entering a new era, a retail analyst has warned.
Yesterday, the group hailed significant progress in its turnaround plan, reporting a £1bn improvement in profitability, announcing pre-tax profits of £217m for the year to January, compared with a £792m loss a year earlier.
However, John Ibbotson of Retail Vision, says that, while Morrisons’ numbers have started to improve, and chief executive David Potts is “doing a good job”, the market environment it is operating in remains as brutally competitive as ever.
He said: “Morrisons had a half decent Christmas in relative terms. The discounters have gone nowhere, food deflation is entrenched and shopping habits are almost unrecognisable from a decade ago.”
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Mr Ibbotson referred to Asda, which launched revival plan Project Renewal, to revamp big stores, cut prices and shelve the expansion of internet click and collect services in response to falling sales, as the “elephant in the room”.
“It overlaps the most with Morrisons in the north; bankrolled by Walmart and implementing Project Renewal, Asda will become a superstore with discounter prices and is set to pose the biggest threat to Morrisons in the months and years ahead,” he said.
The verdict came despite Kantar Worldpanel’s latest figures, which showed that although Morrison’s market share dipped to 10.6%, online growth is looking promising for the retailer.
This followed the announcement that the grocer had teamed up with US online giant Amazon to sell its products through the site. Analysts called it an “inspired” move, and Morrisons’ share price jumped to 203.1p. Less than three months ago the grocer had hit a 12-year share price low.
But Mr Ibbotson said: “Selling a few lines of fresh food from its own factories through Amazon will not make up for the ongoing structural sales and profit decline at Morrisons.”
He added: “For all the hype, Morrisons’ sales have still slumped and earnings are being inflated by asset sales, and there aren’t many assets left.
“Morrisons may be back in the FTSE 100 and it may have teamed up with Amazon, but many will argue its core business is still mutton dressed as lamb.”
