Morrisons blames falling inflation as sales falter

Morrisons announced a dramatic slump in underlying sales growth for the first quarter of this year, blaming the slowdown on falling price inflation and weaker consumer spending.

During the 13 weeks to 2 May, the Bradford-based grocer's like-for-like sales, excluding fuel and VAT, grew by an anaemic 0.8 per cent, which was down sharply from a 4.8 per cent surge in the fourth quarter of 2009.

Alastair Johnston, an analyst at Citigroup, said: "Morrison is no longer outperforming the sector to the degree we have become accustomed to over the last two years."

But the supermarket attributed the slump to the easing of commodity prices, which had resulted in the "virtual elimination of food inflation and lower market growth".

Richard Pennycook, the company's finance director, said surging petrol prices meant motorists were paying £15 more a week fuel, which affected how much money they had left for groceries. He added that Morrisons was also up against strong underlying sales growth of 8.2 per cent in the first quarter of last year, an insisted it was currently growing ahead of the market by a "nose".

Total sales growth at Morrisons rose by 5.9 per cent, excluding fuel, in the first quarter. Mr Pennycook said about 35 per cent of Morrisons' products were on promotion, which was "up there" with its highest ever levels.

When asked repeatedly, he refused to rule himself out of the running for the now vacant role of finance director at Marks & Spencer, which could see him work again with Marc Bolland, the retailer's chief executive. Ian Dyson, the M&S finance director, is leaving to join the pubs group Punch Taverns. Mr Pennycook said: "I never rule myself in or out of anything."

Dalton Philips, the new Morrisons chief executive, will present his strategy for the company in September.