There’s a fine line between bravery and insanity, and considering Morrisons shares fell almost 8% at one point this morning, it’s hard not to go with the latter.
This morning, the supermarket announced a drastic £1bn restructure of its business: having a posted a pre-tax loss of £176m for the year to February, down from £879m profit the year before, it more or less added that it henceforth expects to make an annual profit of £375m or thereabouts, because it’s changing its business model to compete with discount retailers.
You can see why its management felt such drastic measures were necessary. For years now, Morrisons has been the awkward teenager of the supermarket world: it doesn’t quite fit into the ‘discount’ category with Aldi and Lidl, but it isn’t up there with the grown-ups - Waitrose and Sainsbury’s - either. Essentially, this announcement is it trying to define its personality.
The frustrating thing about Morrisons is that it is so close to doing well: it may have been stubborn about a) getting into online retail and b) getting into convenience (the two fastest-growing markets for supermarkets, as it turns out), but it’s trying to change. Having bought online baby retailer Kiddicare back in 2011 to help it ‘understand’ e-commerce, at the end of last year it signed a deal with Ocado to do grocery deliveries, much in the manner that it once did with Waitrose. That website launched in January and is ‘performing ahead of plan’, says Morrisons.
It also spent last year embracing the convenience store format with gusto, opening 90 ‘M Local’ stores, which brought its total convenience estate up to 102 stores. Obviously, though, this strategy costs: a significant proportion of that pre-tax loss was formed by a one-off £903m charge for property and IT costs.
To be fair, though, at least it is acknowledging the threat from the discounters - which is more than Sainsbury's and Tesco have done. Then again, the supermarket listed six ‘convictions about the type of business that our customers want us to be’ that it’s been working to since 2012. Some are sensible, some weird: ‘Value is for ever’ (good), ‘Food focused not generalist’ (good), ‘Experiential over purely functional’ (bit weird), ‘Skills not just drills’ (baffling), ‘General merchandise - clicks not bricks’ (sensible if property is your main cost), ‘Multi-format and multi-channel’ (fair enough).
The good news (to be filed under 'bricks not clicks') is that Morrisons has more assets, in the form of farms and property, than most of its rivals, and it's avoided the temptation to flog those off. If things get really bad, at least it still has a plan B.
Dalton Philips - either genuinely optimistic or a bit desperate - said the new strategy is a ‘bold [no kidding] and comprehensive response to the fundamental and structural changes that are taking place in grocery retail’.
‘I’m confident that Morrisons will emerge from this period of necessary change… well positioned to compete sustainably in the new grocery landscape,’ he added, hopefully. Good luck with that...