Brain Food: Behind the spin - Morrisons

THE DILEMMA

by
Last Updated: 31 Aug 2010

The recent fortunes of Bradford-based supermarket chain Morrisons are like a day-old Yorkshire pudding - it started out all golden and fluffy, but soon deflated into a sodden mess. After the £3.3 billion takeover of Safeway in March 2004, Morrisons gave its first-ever profits warning (with two more since), then lost its finance director and one of only two non-execs. Though like-for-like sales at core stores rose by 7.1% and sales at converted Safeway stores increased by 10.9%, those at unconverted Safeway stores fell by 6.8%. Middle-class customers have found themselves fleeing mountains of spaghetti hoops to seek solace in Tesco's buffalo mozzarella-lined fridges.

THE SPIN

'The task of converting Safeway has been challenging,' said chairman Sir Ken Morrison, 'but I believe we have made good progress towards our objective of becoming one of the four major national food retailers.' He told the FT: 'I speak as a retailer, and as a retailer I can tell you it is going well and we have got a feel of it.' Martin Ackroyd stepped down as FD because 'he is a private person', and non-exec Duncan Davidson 'for personal reasons'.

THE STRAIGHT TALK

Sir Ken's style veers towards the autocratic - the firm has been criticised by investors, shareholders and analysts for poor corporate governance. But concessions have been made: in March, his right-hand man Bob Stott was made the company's first chief executive, and David Jones, respected chairman of Next, became non-exec chairman.

Philip Dorgan, analyst at Panmure Gordon, told the Daily Telegraph: 'The basic problem is a complete lack of financial planning. It underestimated the scale of the job (the Safeway merger) and the competitive response from Tesco.'

THE VERDICT

Research commissioned by Scottish Widows found that before conversion of Safeway stores to Morrisons, 58% of its customers were ABC1; after, the figure fell to 25%. Sir Ken, though, is firm that no changes will be made to pander to posher customers. 'We'll run our basic business as we've always run it. We've got no plans to tailor it to a middle-class shopper. I don't even know what a middle-class shopper is.' Life will be easier for rivals Sainsbury and Tesco if they continue to mop up the fallout from the takeover. But can Sir Ken confound the City and rejoin the retailing elite? Only if he can get all the tills ringing, otherwise Justin King and Terry Leahy will remain kings of the aisles.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today