How new chief Phillips will make more of Morrisons

By RUPERT STEINER FOR THE DAILY MAIL
Updated: 17:47 EST, 29 March 2010

A few years back Morrison's near disastrous acquisition of Safeway sparked five profits warnings in nine months.

But a change in management and a steely focus on fresh food and value fuelled the group's transformation from dog to god.

Earlier this month Britain's fourth largest grocer posted a record £858million annual profits.

Its success has been in sticking to what it does best despite rivals branching out abroad and expanding into 'non-food' ranges such as clothing and electricals.

Northern know-how: Morrisons success is down to sticking to what it knows best

But as new chief executive Dalton Philips takes his seat, investors are questioning where the company goes next. Irishman Philips has big shoes to fill, after his predecessor Marc Bolland surprised all with the pace of his turnaround.

Morrisons has differentiated itself from bigger rivals Tesco, Sainsbury's and Asda with its slogan 'food specialist for everyone'.

It is unique in owning and manufacturing a large proportion of its food, from its farm in Dumfries to abattoirs and packaging plants, but it was only when Bolland came that the retailer started trumpeting its food credentials. Morrisons is now known for specialist butchers, fishmongers and bakers - not just cheap food. And its decision to shun the internet and international expansion has done it no harm.

But the arrival of Philips could lead to a major strategic change. Drafted in from Canadian food group Loblaw, the 41-year- old father of three has a long retail history having started his career as a store manager with Jardine Matheson in New Zealand.

A globetrotting retail executive, Philips has both the experience and hunger to make his mark. Darren Shirley, an analyst at Shore Capital says his arrival could mark a turning point.

'Morrison has just confirmed a vintage year,' he said. 'Can the bouquet remain so fine in future years? Some say Morrison should stick to its knitting, but we question the growth and rating potential from a future based solely in UK grocery.

'With Mr Philips' arrival, Morrison may have the balance sheet resource, capability and importantly the appetite to consider the process of meaningful diversification.'

Philips' 'to do' list is not rocket science. Shirley says there is no point in trying to re-invent the wheel. Top of the pile is the safe and logical option of launching different types of store format.

Morrisons has focused on midsize supermarkets, but could easily branch into convenience outlets or open hypermarkets. It could open more stores adjacent to its petrol stations.

Next, as it modernises its IT platform, a loyalty card could become viable. Morrison (up 1/2p to 296.04p) already has a Christmas savings scheme and a fuel card but an electronic database could help understand its shoppers and tailor its vouchers and promotions.

Shirley says: 'Is the company best served by concentrating on supplying an open and largely anonymous market?'

Morrisons is the only one of the big four grocers that does not sell its wares online. It's an obvious move for Philips in the medium term.

It could start small or make an acquisition. Online grocer Ocado is currently exploring its options and might fit well, though it wouldn't come cheap. Branching into clothing or opening overseas stores would be riskier.

Morrisons chairman Sir Ian Gibson has signalled he doesn't expect any quick changes. But investors will be hoping Philips will be given the slack to make his mark.