Morrisons chief executive Dalton Philips said its offering to cash-strapped consumers and the “professional shopper” is behind the supermarket chain’s third-quarter growth.
For the three months to the end of October, the supermarket chain posted a 4.6% rise in total sales excluding fuel, while like-for-like sales rose 2.4%.
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Speaking to analysts today (10 November), Phillips spoke of the opportunities presented by a still-uncertain UK economy in terms of consumer behaviour. He noted that research from the company had revealed that a third of all its customers had no disposable income at the end of the month and spoke of the importance of shielding them from high raw material costs.
He said: “We work very hard not to pass on any unnecessary costs onto consumers and we work to drive efficiencies where we can and protect customers from commodity costs.
“Overall, there is clear evidence that our offering resonates with consumers, but we remain cautious on the overall economic environment and expect it to remain competitive.”
The retailer’s fledgling convenience arm, M-Local, which currently has two stores and a third in the pipeline, is performing “extremely well”, he said.
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By GlobalData“It’s a fantastic concept that’s really unique. Strategically, it’s impossible to compete with as we are leveraging bakers and butchers in-store.”
Another star performer was ready meals, recently revamped under the M-Kitchen line and historically an area that Morrisons has underperformed in, admitted Richard Pennycook, financial director.
“We’ve improved the range, improved the quality and given more space to ready meals. It’s the right category to be getting into. It’s phenomenal.”
However, Phillips refused to be drawn on rumours surrounding Morrisons’ interest in frozen food retailer Iceland Foods, a controlling stake of which is currently being auctioned.
“We do not comment on these sort of things,” he said.
An analyst note from Santander praised the 60% growth in ready meals sales and described Morrisons initiatives to grow its top line and increase efficiency as “on track”.
Santander also issued a sole note of caution to the market: “The main risk is that the company buys Iceland and overpays, so it is perhaps worth waiting for the deal to happen before buying shares.”
Barclays Capital also applauded Morrison’s like-for-like sales growth of 2.4%, adding: “This implies that Morrison continues to lead the market with its sales growth. Although this certainly reflects a strong underlying performance, it is worth remembering that Morrison’s like-for-like performance benefits clearly from its relative lack of non-food in a difficult consumer environment.”
The Bank of America Merrill Lynch was similarly glowing. It said: “A strong price image, differentiated fresh offer and lack of exposure to non-food is helping Morrison outperform today, but with plenty of further initiatives to help sustain growth in the future.
“The operating efficiencies are well known but we think a more relevant, up-scaled ready meal offer and further work in trialling a more appealing, efficient store, offer scope for profitable medium term growth.”
Bernstein research said: “Despite recent price investments from Tesco and Sainsbury’s, Morrisons remain confident of their price positioning and perception and continue to aim to price below Tesco.”
