Struggling supermarket chain Morrisons revealed a “dreadful” 7.1 per cent slump in like-for-like sales today as analysts warned that its price cuts campaign would cause further declines in the short term.
First-quarter figures for stores open longer than a year were worse than investors had been expecting, even after a recent warning from the chain. Overall sales were down by 4.2 per cent in the 13 weeks to 4 May.
Last week, Morrisons launched an “I’m Cheaper” campaign which cut prices across 1,200 products by an average of 17 per cent as it tries to retake market share from discounters Aldi and Lidl.
The move came after Britain’s fourth-biggest supermarket stumbled to a £176 million annual loss in March and issued a profits warning.
Earlier this week industry figures from Kantar showed Morrison’s share of the grocery market slipping to 11 per cent, from 11.6 per cent a year ago, while the sector as a whole expanded at its slowest rate in more than a decade.
Independent retail analyst Nick Bubb said: “After the latest Kantar grocery monthly market share figures the City was braced for dreadful figures from Morrisons… and they are indeed dreadful.
“Clearly the new price cutting campaign has only just started, but price deflation will make the sales figures worse not better in the short run, before sales volumes pick up.”
Neil Saunders, managing director of retail consultancy Conlumino, described the latest figures as “woeful”, particularly as they followed a 1.8 per cent decline in the same period a year earlier.
He said: “The issue for Morrisons is that, if its price cuts do not deliver increased volume, they will simply have a negative impact on profitability and will weaken the chain still further. Sadly, we believe this is a distinct possibility.”
The firm is planning to invest £1 billion over the next three years to improve its competitiveness and will also launch a new loyalty card scheme.
Morrisons chief executive Dalton Philips said: “The plans we set out at our results in March are on track. The reaction of our customers to the 1,200 ‘I’m Cheaper’ price cuts we announced last week has been very positive.
“Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers.”
A cost cutting programme allowed the group to maintain its underlying full-year profit forecast in the range of £325m and £375m.
Clive Black, analyst at Shore Capital, expects the figure to come in at the very bottom of the range and said he was not yet confident that the “contagion” of price cuts by supermarkets had finished.
He said: “With such weak trading, we cannot yet call whether or not we have come to the end of the downgrade cycle for Morrisons.”