8th May 2014 12:36
LONDON (Alliance News) - Wm Morrison Supermarkets PLC said Thursday that declining sales will continue for some time, while it continues to pump money into its new online business and convenience stores, and in the meantime loses out of market share to better performing rivals and the heavy discounters.
"The market is still tough and structural headwinds remain," Chief Executive Dalton Philips said Thursday, after reporting a further drop in sales and like-for-like figures, as it continues to struggle because of the limited exposure it currently has to online and convenience stores, two channels that are driving growth for other rivals.
While the supermarket chain did not give any guidance on like-for-like sales, Philips said that sales going forward will remain in negative territory, and is expecting a negative sales trajectory for some time.
"We expect the market share trend to remain same at least in the medium term," Finance Director Trevor Strain added.
Looking ahead, the supermarket said that, while the trading environment remains challenging, it retains its full-year outlook expectations for underlying pretax profit to come in between GBP325 and GBP375 million.
The UK's big four supermarkets - Tesco PLC, US Walmart-owned Asda, J Sainsbury PLC and Wm Morrison Supermarkets - continue to lose market share value to low cost rivals Aldi and Lidl, as well as top-end grocery chains like Waitrose, according to grocery share figures from Kantar research.
"We're now seeing the big four moving away from 'here today, gone tomorrow' promotions and toward everyday low prices - with Tesco, Morrisons and Asda all announcing price cuts," said Kantar Worldpanel Director, Ed Garner in a statement Wednesday.
But while Tesco, Sainsbury's and Morrisons have all suffered declines in their market share, it has been Tesco and Morrisons to record falls in actual sales.
Morrisons said Thursday that total sales for the 13 weeks to May 4, 2014 fell 4.2% excluding fuel, and by 5.6% including fuel.
Like-for-like sales declined significantly, down 7.1% excluding fuel, and 8.2% including fuel.
So far this year, Morrisons has pledged to spend heavily on what it has described as their customer propositions. Those include things like loyalty schemes, but most of the spending will be on price cuts.
Back in March, the struggling supermarket chain announced a raft of new measures aimed at turning the business around, including heavy investments in price cuts, property disposals, sales of businesses including baby products retailer Kiddicare, and cuts to capital expenditure, all of which it said will weigh heavily on its results in 2014, but with hopes of rebounding strongly from 2015.
Last week Morrisons recently launched a new round of permanent price cuts on 1,200 products with big splashes in UK newspapers and advertising elsewhere, as it starts to invest the GBP300 million it has said it will spend on various "customer propositions" this year. It said that the new price cuts on average are about 17% cheaper than before.
"We stand for value. Last week was a statement and our declaration of independence about pricing... We have found that we can offer better value for our customers, but its not about a race to the bottom for us," said Philips.
Morrisons said it is making good progress in achieving its strategic goals, with its investment in IT infrastructure and systems on track to support its improvements.
During the period, two new core stores were opened, as well as 11 local convenience stores. The grocer said it remains on schedule to meet its target of having up to 200 convenience stores open by the end of the year.
The grocer's online business is also performing ahead of expectations, said Morrisons, based on the metrics of delivery times and replacement items. Following the Warwickshire and Yorkshire launches, the supermarket will make its first London deliveries May 12.
The company is targeting its online business to reach up to 50% of UK households and, together with the convenience stores, is expected to account for over GBP500 million of annualised sales.
"Morrisons' recent unveiling of a raft of price cuts might help stem the flow of shoppers deserting it for the discounters, after a few quarters of quite worrying like-for-like sales decline," said Bryan Roberts, Retail Insights Director, Kantar Retail EMEA.
Morrisons said Thursday that realistically it will take some six months for its customers to get used to the recent price cuts.
"It's going to take time for customers to understand and believe that those prices are here to stay," said Philips.
The grocer is also streamlining its ranges in store, with plans to reduce 20% or around 25,000 SKU items over the next three years.
"Clearly, a lot will depend on how competitors react to the Morrisons price offensive, but we retain a degree of underlying optimism that, after what will be a tricky 2014, a leaner and stronger Morrisons will be back on track in 2015," Roberts added.
Shares in Morrison dropped shortly after the open Thursday, trading 2.04% lower, but have since recovered, trading 3.1% higher at 196.70 pence Thursday afternoon.
Story updated by Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Original story by Alice Attwood; [email protected]; @AliceAtAlliance
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