Lidl and Aldi pose biggest supermarket threat ever
Morrisons announces £1bn business overhaul after slumping to a loss
Thursday 13 March 2014
Morrisons took a sledgehammer to its supermarkets as it announced huge writedowns, made a second profit warning in two months and promised a price war in a last-ditch effort to win back customers from rivals.
However, chief executive Dalton Philips refused to admit that Morrisons was in the mire, pointing to initiatives such as a rapid expansion into convenience stores and better-than-expected success in its online tie-up with Ocado.
Pre-tax losses hit £176 million due to a £903 million hit from writing down the value of its property portfolio, IT system costs and the disposal of its Kiddicare business, which bosses admitted had performed poorly since it was bought in 2011.
The company also said profits for next year will fall below expectations, as Philips attempts to realign the supermarket and go head to head with the discounters Aldi and Lidl.
Morrisons said it would spend £1 billion over the next three years in bringing its prices down. It will also reduce the number of lines it carries in an attempt to lower operating costs.
The decision to cut prices to tackle the growth of Aldi and Lidl sent the share prices of its listed rivals tumbling. Tesco fell 4.02 per cent to 301.75p while Sainsbury’s was down 7 per cent to 310.2p and partner Ocado fell 2.6 per cent to 525p.
At one point in early trading, shares in Morrisons plummeted by 10 per cent, and although the stock regained some of that ground later, it was still 7.68 per cent lower at 215.1p.
“Today is an important day,” Philips announced. “We are facing some big structural changes and it is the biggest challenge facing the industry since the 1950s.”
He added that the £1 billion in price cuts will be funded by efficiencies brought by technology, with many tasks still being carried out using paper filing systems. The company will also sell off some of its property portfolio, although Philips said he would not bow to pressure from activist investors to start selling individual stores.
He said: “Around 80 per cent of our stores will still remain freeholds. Our shareholder base overwhelmingly still want us to keep our freeholds. There were a few voices who said we should sell, but the vast majority don’t and we agree with them.”
One of the biggest writedowns was on the Kiddicare business, which was bought only three years ago for £70 million, with Philips admitting that £163 million will be spent offloading the baby superstore.
He said: “I’m disappointed with the losses incurred, but we got tremendous learning from it. The market has structurally changed and Kiddicare doesn’t fit with the core strategy in these times.”
Next year, the supermarket will ramp up its online business with Ocado, launching in London in the summer, while a further 100 convenience stores will be opened this year.
Philips, who has been in charge for four years, declined to say whether he felt his job was under pressure and insisted that he was focused on the job at hand.
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