It still has a long way to go but the renaissance of Morrisons' brand is well and truly underway after the supermarket reported its third consecutive quarter of like-for-like growth.
Price cuts, better customer insights, strategic partnerships with the likes of Amazon and Ocado helped push like-for-like sales up 2 per cent in its second quarter, up from 0.7 per cent in the prior period. It may still be losing market share – as seen by it being usurped by the combined total share of Aldi and Lidl – but this is due in part to the decision to shutter around 30 stores and sell a loss-making convenience chain.
Indeed, its quarterly performance shows how much pace has gathered behind the business in the first half of the year, a shift made clearer by the fact that it posted a rise in that period for the first time in four years.
The supermarket’s return to its roots of low prices, good value and fresh food is finally helping it fight back against the discounters following the struggles of previous years. Sales are up, but against the backdrop of intense competition, tighter margins and lower returns on capital, many observers are yet to be convinced that there is enough of a reason for shoppers to keep coming back to Morrisons stores. Analysts remain wary of the long-term potential of Morrisons' quiet revolution, according to a Reuters report, with many believing there is still room for improvement.
Naysaysers point to a looming price war, observing that chief executive David Potts will need to commit even further to his back to retail basics approach, particularly when it comes to lowering prices.
“The key for Morrisons going forward is to clearly differentiate from the immediate competition,” said Danielle Pinnington, managing director at shopper research agency Shoppercentric. “Price alone won’t work, so a looking at the benefits of shopping at Morrisons from the shopper perspective, and highlighting those virtues could better support differentiation.”
Potts, who replaced Dalton Philips last February, appears to be of the same mind, claiming that the “turnaround opportunity is in our hands”.
“We are pleased with the positive like-for-like sales and 11 per cent underlying profit growth in the first half. Our priorities remain unchanged. We have made improvements to the shopping trip for customers and we plan to do more.”
Part of the progression will undoubtedly come from the marketing for the retailer, which underwent an overhaul at the turn of the year when Publicis was brought in. Morrisons' marketing had arguably been more functional in the past whereas now there’s a willingness to trumpet the emotional connection of food and the connection that forges with the retailer. Not much of the new approach has been seen to date, save for a new campaign and logo, but Morrisons will be hoping it has enough pull to win shoppers over during the crucial festive period, which is a matter of weeks away.
Future investments will likely include digital, an area that Morrisons has traditionally been the slowest of the big four supermarkets to embrace. A deal it struck with Amazon in February should help boost volume sales and consequently profitability given the online retail giant’s own charge on London’s grocery sector, an area where Morrisons has a limited presence and is dominated by Tesco and Sainsbury’s.
Morrisons is also apparently benefiting from its own belated move online through a partnership with Ocado, which was renegotiated earlier this year and will expand the supermarket’s home delivery service. Potts singled it out as one of the “strategic and operational highlights” of the year to date.
One cloud on the horizon for Morrisons and its peers is the threat of Brexit on the economy. Analysts are split on how this is playing out and Potts admitted it was still too early about the referendum result. Since the vote he confirmed that it has had “no negative impact on customer sentiment or customer behaviour”.
“The beleaguered retailer is finally heading in the right direction, but there is still a long way to go,” said John Ibbotson, director of the retail consultancy Retail Vision. As the smallest of the Big Four, Morrisons will be sorely tested by the looming price war with the sector's deep-pocketed behemoths…. “The brand’s current campaign is entitled ‘Morrisons Makes It’, and on this evidence it might just make it after all.”