Morrisons’ new chief executive, David Potts, is canvassing shoppers and staff on how to build a stronger identity for the “British underdog” supermarket, as a continued decline in sales underlined the scale of the challenge at Britain’s fourth biggest grocer.
The former Tesco executive who replaced Dalton Philips as boss in February is sending a team of managers and graduate trainees into two stores each week to speak to customers and staff as he tries to identify “unique characteristics [that] can become competitive strengths”.
“I honestly believe if we listen hard to customers and our colleagues we won’t go far wrong,” Potts said. “They already hold the keys to the kingdom - why people love Morrisons. We need to work to bring that to life in more stores on more days.”
The Bradford-based grocer said sales at established stores, excluding fuel, fell 2.9% in the 13 weeks to 3 May. The pace of decline was worse than the 2.6% decline in the previous quarter although better than forecasts. The company said trading had improved in recent weeks after Potts introduced new measures to ensure shelves were well stocked, stores kept clean and 5,000 more staff were on shop floors.
“If we can get those things to run the right way over the whole week then we should be rewarded,” said Potts, who has personally toured 90 stores in his first seven weeks in the job.
He said Morrisons, which runs about 500 stores and serves 11m customers a week, was a “good brand” adding: “As the British underdog we should rejoice in that position and bring it to life at the shop.”
Potts was hired by Morrisons’ new chairman, Andy Higginson, to revive the chain after profits halved in the face of heavy competition from German discounters Aldi and Lidl in its northern heartland. Like all the major grocers, it is also under pressure from falling commodity prices and shoppers who are reluctant to splash out on groceries.
Morrisons said underlying profits before tax would be higher in the second half of the year. Its finance director, Trevor Strain, added that the company was happy with City forecasts of £356m for full-year profits. Profits more than halved to £345m last year, the group’s worst result in eight years. Including a £1.3bn writedown of the value of its supermarkets, it reported a statutory loss of £792m.
Investors were not impressed and the shares were the FTSE 100’s biggest faller, losing 6.5%. They have sunk from 296p two years ago to just under 177p.
In an attempt to cut costs, Potts has moved swiftly to oust a string of senior directors and axed 720 head office jobs. The company said on Thursday the head office reorganisation would result in a one-off charge of up to £40m. Morrisons also closed more stores than it opened during the first quarter, which led to a net reduction in selling space of more than 50,000 sq ft.
Details of Potts’ plan to rebuild Morrisons are expected to be revealed in the autumn after he has considered feedback from the stores’ focus groups, a company-wide staff questionnaire and hundreds of thousands of emails from shoppers.
Potts said it was already clear that shoppers wanted “prices they can trust” as well as special offers - indicating more price cuts may be on the way.
Earlier this week Mike Coupe, chief executive of Sainsbury’s, predicted that food deflation would continue for the next 12-18 months.
Strain said: “The supermarket sector has widely acknowledged that it needs to be more competitive … The consequence of this is more food deflation.”
But he stressed the importance to Morrisons of fresh food and the retailer’s unique supply chain, through which it processes much of its own meat, fish and fresh vegetables.
Potts said the retailer had the chance to increase market share in a range of products where it was underperforming, including health & beauty, gluten-free foods and white wine.
“I don’t see a minute of any day when I am not seeing a better opportunity for this company and we have only just started to listen to customers,” Potts said.
Shore Capital analyst Darren Shirley said: “It is clearly still very early days in Mr Potts’s tenure but we sense he is bringing a deep-rooted and fundamental change to Morrisons that is for the better. We make this assertion not because Dalton Philips was ineffectual but because in this market the business needs an experienced leader. In this respect we demonstrably believe that Mr Potts has hit the ground running.”
Speaking to shoppers
It will take Morrisons the next few years to conduct focus groups for staff and shoppers in each of its 500 stores as it tries to stem falling sales and profits.
The retailer’s customer research team will work with graduate management trainees to ask small groups of regular shoppers, local people who shop elsewhere, and store staff how they think their local store could improve.
Once the findings have been assessed, Morrisons will send in a team to respond to particular issues in each store, whether that’s putting the baked beans in a place that’s easier find or revamping the toilets.
Early feedback will also inform a major effort by new chief executive David Potts make Morrisons more attractive to shoppers. The former Tesco executive has already sent out a questionnaire to all Morrisons’ 120,000 staff and used social media to speak directly to shoppers. Hundreds of thousands of shoppers and staff have emailed in since Potts issued a video plea for comments on his first day in the job.
