Profit fell at Morrisons as consumers trade down

Supermarket Morrisons today (27) revealed that its sales and profits fell last year even as it put prices up, blaming the slide on shoppers becoming “increasingly pessimistic” amid the rising cost of living, political uncertainty and higher costs.

The supermarket has forecasted a return to earnings growth this year as a push to improve its price competitiveness starts to win back shoppers battling an escalating cost-of-living crisis.

Chief Executive David Potts said the company’s focus since October on becoming more competitive on key products had started to bear fruit, and further work on prices would attract customers this year.

“Our competitive position in the market has improved significantly throughout the last few months,” he told reporters, highlighting a programme since October of price cuts on essential products, price freezes and fuel promotions.

“Customers are noticing and starting to vote with their feet.”

Potts is confident that earnings will grow this year, despite continued cost and other inflationary headwinds. He said improved sales momentum was evident in the new (2022-23) financial year with sales in the three weeks before Christmas up 2.5 per cent year-on-year.

Commenting on the figures, Joe Dawson, Retail Analyst at GlobalData, stated that UK’s food and grocery market saw rapid growth in 2022 as food inflation soared to 16 per cent in the later months of the year, leading to shoppers prioritising spend on essentials and trading down to own brand products and to discounters Aldi and Lidl.

“Despite announcing price cuts in its Savers range later in the year, Morrisons’ vertically integrated nature made it more difficult to rapidly adjust to the pressures of rising inflation and energy costs, while Tesco and Sainsbury’s continue to effectively protect themselves against challenges posed by discounters.

“The major grocers’ early adoption of Aldi Price Match schemes has allowed them to compete on affordability both reporting positive like-for-like sales growth in Q3 2022/23 and during the Christmas period, while Morrisons has been very late in its efforts to convince shoppers it is delivering on price and has suffered as a result,” Dawson said.

The outlook for Morrisons in 2023 is more positive, Dawson said, as it should benefit from a greater focus on further price cuts and loyalty-based savings and rewards, as well as the expansion of its recently acquired convenience branch in the form of McColls.

“However, this will be an uphill battle, as competitors continue to improve their own value offerings and discounters make strides in gaining market share and consumer loyalty,” he said.