MORRISONS will ring up tough first-half trading results this week as a result of fiercer competition from rival Asda after the latter’s acquisition of value operator Netto.
Morrisons, Scotland’s third-biggest supermarket chain with nearly 60 stores, is thought by the City to have underperformed its rivals in a consumer climate that chief executive Dalton Philips has already described as the worst for a generation.
Analysts say the Bradford-based food retailer, which has a 15 per cent Scottish market share, is likely to have been the most impacted of Britain’s supermarket giants by Wal-Mart-owned Asda’s successful acquisition and conversion of nearly 150 Netto stores to the Asda brand.
“A considerable number of these acquired stores are located in Morrisons’ northern England heartland and, as such, their increased competitiveness under the Asda banner represented a negative share shift for Morrisons over the other major players,” Shore Capital said in a note.
The City consensus for interim pre-tax profits is £434 million on turnover of £8.9 billion. The consensus for full-year profits is £939m.
It is also thought Morrisons’ sales are likely to have been reined in by its store modernisation programme. The company said, at its annual results in March, that 48 updated “Fresh Format” stores would be trading by the half-year end in July, substantially more than the 36 store revamps expected.
“The conversion programme is likely to have negatively impacted [its] sales due to store disruption,” Shore Capital said.
The broker added that Fresh Formats may risk “falling between two stools” – upsetting core value-based customers with a pricier fresh food offer that has, as yet, failed to entice more affluent shoppers.
“Aldi and Asda may have been especial beneficiaries of the transfer of value-based customers in Morrisons’ trading heartlands,” it said.
Another analyst said: “Asda’s move on Netto was definitely not good news for its rivals, but probably Morrisons most of all.”
It is also thought that strong voucher initiatives launched by rivals such as Tesco, Sainsbury’s and Marks & Spencer may have hit the latest Morrisons performance.
The pace of the sales fall is also thought to have worsened to minus 2 per cent in the second trading quarter.
The market will also be looking for further news on the rollout of the group’s MLocal convenience stores to take on the likes of Tesco Express and Sainsbury’s Local. Last January, only three pilot MLocals had opened, none in Scotland. One City watcher said: “The City will be hoping for better news on MLocal in particular.”
Morrisons has been fighting back with promotions, including a competition run with energy drink Powerade giving customers the chance to go on a training session with Olympic champion Jessica Ennis.
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