Morrisons chief sets out stall as supermarket bids to close gap on rivals

Published on Saturday 4 September 2010 10:07

MORRISONS new chief executive Dalton Philips will set out his initial thoughts on the business this week as he bids to close the gap on his bigger supermarket rivals.

Analysts believe his plans will include more convenience stores, an expansion of non-food ranges and moving online. They say it could help Morrisons, Britain's number four grocer, to close the share price discount to its competitors.

Morrisons is expected to report a 14 per cent rise in first-half underlying profit to 409 million on Thursday, according to a poll of 7 analysts.

But its shares have lagged the STOXX 600 European retail index by 12 per cent over the past year and are valued below most rivals as a multiple of forecast earnings.

"Although the business is in good overall health, in our view it lacks a compelling growth avenue at present," said UBS analyst Mike Tattersall.

Philips joined on 29 March from Canadian grocer Loblaw, replacing Marc Bolland who left to join Marks & Spencer. Analysts caution that he will only give an outline of his thinking and leave the details to full-year results in March when the group has promised a review of its balance sheet.

He also does not have the fire power of industry heavyweights such as Tesco and Wal-Mart to expand on multiple fronts, and so will have to prioritise.

Riskier or more expensive investments, such as expanding abroad, into financial and other services, or introducing a loyalty card, are likely to stay on the back burner.

But that still leaves plenty of room for Morrisons to build on its goal to move from a "national to nationwide" retailer, which could include a drive to expand smaller stores, revamp non-food ranges and move online.

Citigroup analysts think that should satisfy investors. "The scope for Morrison to re-rate upwards after the market gets more comfortable with the new CEO's strategy is considerable," according to the firm's latest circular.

One focus for Philips is likely to be expanding into smaller neighbourhood and convenience stores, where sales have been surging in recent years.

Going small could also help Morrison's to achieve its goal of becoming a force in the south-east of England, where it is currently under-represented against its national presence.

Barclays Capital analyst James Anstead thinks a drive for smaller shops could eventually form part of a move to increase Morrison's existing expansion plan to add 1.5 million square feet of selling space by 2013, warning that if it does not do this it will lose market share to faster growing rivals.