Three former top Tesco executives are now running Morrisons after the struggling supermarket business named David Potts as its new boss with a mandate to focus on its core supermarket business.
Potts - who spent 38 years at Tesco before quitting in 2011 - will join two former colleagues at the top of the Bradford-based grocer: chairman Andy Higginson and finance director Trevor Strain. The three are not regarded as being tarnished by the current crisis at Tesco and now lead the charge to turn around a business that has been battered by cheaper rivals such as Aldi and Lidl but also failed to take on those at the top end of the market such as Marks & Spencer.
His appointment was welcomed by analysts. “We believe that Potts will bring focus and pace to Morrisons, a business where in tandem with Messrs Higginson and Strain we view the current strategy as being correct but the execution in particular needs correction,” said Clive Black at Shore Capital.
Respected in the industry as an experienced nuts-and-bolts retailer, Potts, 57, began his career with Tesco in 1973 and will join his former employer’s arch rival next month. Having started off stacking shelves in his local store, he had various roles at Tesco but left in 2011 when the now discredited regime change took place to replace Sir Terry Leahy.
Sir Ken Morrison, who oversaw the transformation of the business from family grocer to national chain, welcomed Potts’ arrival. “I think his appointment is a good thing. Morrisons needs some direction at the moment,” he said. “In my opinion we need to go back to the old standards that have been lost in the last few years. We need leadership. Morrisons has changed for the worse.” Last summer the octogenarian turned up at the grocer’s annual shareholder meeting and publicly attacked Dalton Phillips’ strategy as “bullshit”.
Higginson, who has been chairman for barely a month, said: “David is the best retailer I have worked with in 25 years in the industry. He will bring to Morrisons a focus on the customer, a track record of delivery, flair, talent, and immense energy to his new role.”
He told Retail Week that Potts would have a focus on the core supermarket business to “get some trading momentum back.”
Potts will receive £850,000 in salary and replaces Dalton Philips, who quit last month after a poor Christmas performance. While Potts will join the UK’s fourth largest supermarket chain against the backdrop of a modest improvement in performance, analysts have cautioned the performance was flattered by soft comparisons.
His appointment also fuelled speculation of further change at the top of Morrisons, particularly at board level. “We will naturally ... expect some adjustment to operations, which may involve further evolution of the senior executive team. In this respect we believe that there could be wholesale evolution of the non-executive team that, to our minds, has overseen some dreadful decision-making in time too,” said Black.
But there was little expectation of sweeping change to the strategy. At the time of Philips’ resignation, Morrisons announced 10 loss-making stores would close, affecting 409 jobs, but did not step back from Philips’ strategy of making deep cuts in prices and behind-the-scenes efficiency drives.
“We believe this is a good appointment of a strong UK retailer with a proven record,” said analysts at Jefferies. “It remains to be seen how Mr Potts may reinterpret the group’s strategy. We would speculate at this juncture that revolutionary changes to the current strategic framework are unlikely”.
Potts may face questions about the 25-year distribution deal that his predecessor signed with Ocado in 2013 to deliver Morrisons’ goods from the online grocer’s warehouses. The agreement gave Morrisons an internet service for the first time but Philips faced criticism that he had tied Morrisons’ hands with such a long agreement. Analysts have said Potts may look for a way to extricate Morrisons from the arrangement although Ocado has said the contract is watertight.
“To our minds we would be surprised if this model was deemed to be the way forward,” Black said.
Analysts are also watching the dividend, amid expectations it could be cut in the wake of Tesco’s move to cancel its final payout to shareholders.
Headhunters said Potts had the skill to motivate the 100,000 employees. “At a time when Morrisons’ employees may be feeling a little unsure, David will motivate and galvanise a large group of people and in turn earn their trust,” said Kate Latham, managing director at headhunters Norman Broadbent.
