Britons' changing shopping habits hurt Morrisons again
By James Davey
LONDON, Nov 6 (Reuters) - Britain's Morrisons posted another big fall in quarterly sales as shoppers sought savings in discount chains or paid more for upmarket treats though the grocer said its plan to address changing industry trends was working.
With wages stagnant, discounters are booming and all Britain's grocers have responded by cutting prices, hitting profits. Sainsbury's on Thursday unveiled a new front in the battle to win back thrifty shoppers, opening a cut-price store with Danish firm Netto in Leeds, northern England.
Some households are spending the money they save in stores such as Aldi and Lidl in upmarket stores including Marks & Spencer, which on Wednesday posted a 20th straight underlying quarterly sales rise.
The change in shopping habits has hit mid-range stores hardest.
"Morrisons continues to show the battle scars of a (UK) grocery market undergoing the biggest structural change for a generation," said analysts at retail researcher Conlumino.
The company on Thursday reported a 6.3 percent fall in sales at stores open over a year, excluding fuel, for the 13 weeks to Nov. 2, its fiscal third quarter. That was steeper than analyst forecasts for a fall of 5.2 percent and a second quarter decline of 7.6 percent.
But its shares, down 42 percent over the last year, rose up to 9.3 percent, as the firm said the number of items shoppers were putting in their baskets was improving, expressed confidence in its profit outlook for 2014-15 and detailed progress on debt reduction.
Britain's 174 billion pounds ($278 billion) grocery market is growing at its slowest pace for two decades as recession-era shopping habits have become entrenched and as consumers grapple with stagnant earnings.
The "big four" -- Morrisons, Sainsbury's, Tesco and Wal-Mart's Asda, have seen sales squeezed. Market leader Tesco is also reeling from an accounting scandal.
"The (UK grocery) sector is going through a period of challenge that makes visibility on earnings and dividends very limited," said Shore Capital analyst Clive Black.
Sainsbury and Dansk Supermarked, Denmark's largest retailer whose Netto brand is present in five countries, have started a new initiative to address the problem.
Both companies have pumped 12.5 million pounds into their joint venture with a view to winning a slice of a 10 billion pound UK discount sector that is forecast to double in value in five years.
Shares in Sainsbury's, which will publish interim results and report on a strategic review on Wednesday, rose up to 7.3 percent.
FALLING BEHIND
Bradford, northern England, based Morrisons has also suffered because it has lagged rivals in entering fast-growing online and convenience store markets.
The firm issued a massive profit warning in March and set out a plan to restore its low-price image and boost sales volumes by spending 1 billion pounds reducing prices over the next three years.
Morrisons' chief executive Dalton Philips is under particular pressure because a new chairman is joining the firm next year, with Andy Higginson, a former Tesco finance director succeeding Ian Gibson. Analysts expect Higginson to appraise the grocer's direction.
"Although brimming with ideas on how to solve the malaise surrounding the chain, ... Philips has yet to deliver a marked improvement in performance," said David Gray, retail analyst at Planet Retail.
"If the (new) price-matching loyalty scheme doesn't deliver the necessary result, Philips' days may yet be numbered."
Philips, CEO since 2010, said he does not expect Morrisons' initiatives, which include a loyalty card scheme that guarantees to price match Aldi and Lidl, to start to benefit its sales performance until towards the end of the second half of its 2014-15 year.
That's because dramatically cutting prices does not result in an instant sales increase as it reduces actual cash sales going through the tills.
"The fact that we are reducing prices makes us more competitive but for a period it will have a deflationary impact on our sales," Philips told reporters.
He gave broccoli as an example where Morrisons has cut the price from 1 pound a head to 49 pence. Weekly sales had doubled from 250,000 heads a week to half a million. Some 8 million extra heads had been sold this year but the value of the sales line had remained the same.
"It's going to be a dramatically cheaper Christmas for our customers this year versus last year," he said.
Philips said he did not consider the outcome of the Christmas trading period as "make or break" for his own future at the firm.
Morrisons now expects underlying profit before tax for 2014-15 to be in the narrower range of 335-365 million pounds versus previous guidance of 325-375 million pounds, after 65 million pounds of new business development costs and 70 million pounds of one-off costs. It made 785 million pounds in 2013-14.
The grocer now expects year-end net debt, currently 2.6 billion pounds, to be 2.3-2.4 billion pounds, 100 million pounds better than initially guided and 400-500 million pounds lower year-on-year. (1 US dollar = 0.6254 British pound) (Reporting by James Davey; editing by Kate Holton and Anna Willard)
