The method behind Morrisons’ miracle

Stuart%20SmithHere’s a bit of a shocker. The UK is reeling, economically speaking, from a burnt-out financial sector, the Northern Rock fiasco and a share sell-off apparently signalling the worst recession since the early 1990s. Meanwhile, retailers have been feeding the gloom with less than lustrous results. Even the mighty Tesco slightly undershot expectations a few days ago, and was punished severely.

Then lo and behold, amid all the wailing and gnashing of teeth, comes the Morrisons Christmas sales update, in which the supermarket chain emerges an unlikely but triumphant seasonal winner. Not simply because the others fell by the wayside, either: by any reasonable standard Morrisons’ performance really was stellar. Like-for-like sales (excluding fuel) were up 9.5% over the six weeks to January 6, which comfortably exceeded anything anyone else has done, including Waitrose.

City analysts, taken by surprise, had to scurry back to their desks for the unaccustomed task of reworking year-end expectations upwards (mostly by a comfortable extra 50m, or roughly 10% of profits). This pattern really does not fit the doomsters’ scenario.

Now the cynics, and there are plenty of those around at the moment, will say this is merely a delayed recovery story. The Morrisons takeover of Safeway was botched, the storyline runs, and while all the other supermarket majors were cruising happily over the past two years, Morrisons swerved off the road and disappeared into a deep ditch. It has taken a new chief executive, Marc Bolland, to put it back on the road again and, not surprisingly, the very fact that it is now motoring at all has flattered the results.

Others, while conceding there has been growth, have adopted a more sophisticated marketing argument to pooh-pooh the strategy. They say, quite simply, that Morrisons has bought share through sales promotion and that there is no profit in the extra share. In other words, the miracle can’t last.

There’s some merit in both these observations. But you can’t have it all ways at once and treat the recovery angle in isolation. Marks & Spencer is a recovery story as well and, when the wheels came off, everyone else got hit by the flying debris. Morrisons’ out-performance should be regarded as no more freakish than M&S’ under-performance.

Then again, although marketing has certainly played an important part in Morrisons’ recovery, there’s a lot more to it than price discounts and sundry bogofs. The group has also changed the product mix, significantly sharpening its fresh food offer. And supported this repositioning with a heavyweight advertising campaign featuring Lulu, Denise van Outen and Alan Hansen. Not entirely by chance, the strongest growth came from the more affluent south-east England, where Morrisons has traditionally been at a disadvantage.

Undoubtedly business will face more torrid times this year, but that is no reason for capitulating to them. Others should take heed of Morrisons’ example. Now is not the time to cut the marketing budget.

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