Morrisons has reported a 0.2% increase in like-for-like sales (excluding fuel) for the nine weeks to 3 January 2016, encouraging researchers and paving the way for the further differentiation from its main rivals to win back shoppers.
Commenting on the supermarket’s sales performance, Stephen Springham, head of Knight Frank retail research, said: “Hardly explosive growth in itself, but in the context of a UK grocery market undergoing unparalleled structural change and analyst consensus forecasts of -2%, this is a highly encouraging performance.
“The other big four have yet to report, so these figures are difficult to put into wider context. Taking Morrisons as a bellwether rather than outlier, this could mean that the UK grocery market as a whole fared better than feared over the festive period. Sainsbury’s and Tesco will provide more clarity.
“But looking at Morrison’s in isolation, there is still much to be encouraged about. As well as having the strongest balance sheet in the sector, these figures vindicate David Pott’s underlying strategic direction. True, one swallow doesn’t make a summer, but the groundwork is being laid for a much more sustainable future.”
Morrisons is right to focus on its single, large supermarket format, according to Springham. “Those analysts that persist in calling for the business to develop and aggressively roll-out a small store concept simply do not understand the dynamics and hard economics of food store retailing,” he said. “C-stores may be a key driver of top line growth, but they are not necessarily the panacea many make them out to be. Morrisons is right to focus on the fundamentals of food retailing, rather than be distracted by other channels and endeavors.
“Morrisons is unquestionably the ‘simplest’ of the big four grocers, in terms of its channel and format structure, geographic spread and limited exposure to non-food. In challenging times, simplicity may well prove to be king – just ask Aldi and Lidl.”
Simon Johnstone, researcher at Kantar Retail, agreed. “Having sold its entire convenience business, Morrisons is now under the greatest pressure to reinvigorate big box retailing in the UK,” he said. “Whilst improving store standards, with its Back to Best programme, will play a key role, Morrisons still face issues in terms of brand identity. Key to improving this this will be the direction it takes with its new marketing ad agency. With Dave Potts focusing on a return to profitability, the huge investment in marketing seen in the past is no longer a viable option. However, with Asda continuing to focus on value and Tesco needing to rebuild its reputation, Morrisons has a unique opportunity to differentiate itself and win back shoppers in a turbulent retail sector.”