As profits slide, Morrisons is taking “further significant moves” to become more locally integrated in communities by accelerating the roll-out of its convenience store portfolio.
The grocer already supplies almost 1,400 local convenience stores with its products, including 1,200 McColl’s stores. Plus 300 McColl’s stores are set to be rebranded and converted into Morrison Daily stores by the end of 2023.
However, having recorded strong sales and performance across the 80 existing stores – 50 of which have been launched since the beginning of this year – Morrisons has upped its plans and now expects to convert 350 McColl’s stores by the end of November 2022. McColl’s recently reported 20-25% sales increases on conversion.
Morrisons Daily stores offer a full convenience range provided by the supermarket, but continue to be owned and operated by McColl’s. When revealing the plan earlier this year, Morrisons CEO David Potts called the partnership another example of the grocer extending the reach of its brand.
“In doing so, we are building a broader, stronger Morrisons for customers, and leveraging our existing assets to achieve capital light, profitable growth,” he said.
According to Morrisons, McColl’s has identified hundreds more of its stores that it considers have the potential to be converted to the Morrisons Daily format. In addition, the company is trialling on-demand local home delivery from Morrisons Daily with Uber Eats.‘Food can be a force for good’: Morrisons launches first ad as part of new brand positioning
Earlier this week, rival supermarket Asda confirmed plans to launch 28 “on the move” convenience stores at petrol stations this year, having already trialled the proposition in five locations. It’s Asda’s first major push into the convenience market, in which the likes of Tesco and Sainsbury’s have long operated with their Express and Local brands.
Asda filed its 2019 accounts last week, in which it posted sales for the year of £22.9bn, a like-for-like decline of 0.8%. Operating profit stood at £584.2m, down from £803.2m in 2018.
Similarly, according to its financial results for the first half of the year, Morrisons’ like-for-like sales excluding fuel and VAT slipped by 0.3% year-on-year, dropping by 3.7% in the second quarter alone.
First-half profits before tax plummeted by 37.1% to £105m, following £41m in Covid-19 direct costs and £80m of lost profit in cafés, fuel and food-to-go. With costs expected to be less severe moving forward, Morrisons expects profitability to improve “significantly”.
As part of its bid to become more locally integrated, Morrisons has also “accelerated significantly” its partnership with Deliveroo, with 328 stores now offering the rapid delivery service, up from 183 at the end of last year.
The grocer also launched its ‘Growing British Brands’ programme over the first half of the year, an initiative to encourage British entrepreneurs to approach Morrisons with “distinctive and innovative” products and supply the supermarket locally or nationally. The first brands are likely to launch in the second half of 2021.
Meanwhile, sales through the ‘Morrisons on Amazon’ home delivery channel have remained “very strong” even as lockdown restrictions have eased, with total online sales up 48% year on year and 237.1% on a two-year basis. The same-day delivery service is available to Amazon Prime members and has expanded to cover more than 60 towns and cities, covering 60% of the British population.
The grocer claims that in the majority of the stores that offer Morrisons on Amazon, the service makes up approximately 10% of sales. The supermarket therefore plans to open more locations over the coming year.
Investing in price
Morrisons is also continuing to invest in reducing the prices of ‘customer favourites’, covering around 2,000 items that the supermarket believes customers care about most. Over the first half of the year, the price of that overall basket was cut by a further £45.
On its mission to improve the quality, nutrition and packaging of 6,000 of its own brand food items, the grocer claims to have made a “good start”, with around 1,200 completed over the past half. That has included modernising the branding of its ‘The Best’ range, helping to drive an 18% increase in sales of the range year on year.
Morrisons claims to have “resisted” pressures from global commodity prices and freight inflation to keep prices low “for as long as possible”, though it expects those pressures to continue into the second half of the year. Adding to those pressures the current shortage of HGV drivers, Morrisons expects some industry-wide retail price inflation over the second half of the year, but has promised to try and mitigate these and other potential cost increases.Morrisons moves price up the agenda as it looks to become ‘more competitive’
Morrisons chair Andrew Higginson says: “Across the business the whole Morrisons team has shown commendable resilience facing into a variety of continuing challenges during the first half, including the ongoing pandemic, disruption at some of our partner suppliers, and the impact on our supply chain of HGV driver shortages.
“As we approach our busiest time of year, I’m confident the team will continue to rise to all challenges and keep up all the good work to improve the shopping trip for customers.”
Morrisons is currently subject to two separate ownership bids by US private equity investors which want to take the company private, with CD&R the frontrunner having valued the supermarket chain at £7bn. However, rival firm Fortress may still come in with an improved bid.