Morrisons in fine form

- Last updated on GMT

Related tags: Safeway, Morrisons

With the takeover of Safeway finally completed this month, UK
supermarket group Morrisons is preparing for a busy 2004 of store
refits, closures and disposals. But at least it starts the new
financial year in good shape, with double digit increases in both
sales and profits for 2003, writes Chris Jones.

Turnover for the year was some 15 per cent higher than 2002 at £4.9 billion, in turn lifting operating profits by 14.5 per cent to £305.1 million, even including the costs related to the Safeway takeover.

Trading in the first six weeks of the current financial year maintained the rhythm, with turnover up by 15 per cent, but keeping this rate of growth going throughout the year as a whole will be a harder task as Morrisons begins the task of integrating the Safeway business.

Sales growth in 2003 was helped by the excellent first time performances of a number of new stores opened during the year, and this certainly bodes well for the Safeway stores due to be converted to the Morrisons banner this year. More importantly, perhaps, is Morrisons' continued improvement in customer numbers (up 3.4 per cent), average spend per customer (up 3.9 per cent) and sales per store (up 7.4 per cent).

Safeway's stores have perennially suffered on all these counts, and the uncertainty over the chain's future during the last 14 months has done nothing to improve the situation, but with Morrisons' store design, pricing policy and product range clearly continuing to attract new custom, the Yorkshire-based group will not be confident of a sharp upswing in trading at the first 50 Safeway stores planned for conversion this year - notwithstanding the fact that the demographics of its customer base will change as it pushes further into the south of the country.

Sir Ken Morrison, chairman of the family-run group, said that work on benchmarking the own label products of Morrisons and Safeway was nearly completed, a move which he said would allow the company to "simplify the supply chain and maximise production efficiencies"​. He added that "the difficulty in obtaining information before 8 March 2004 [the date the takeover was completed] has been a handicap, but we are rapidly catching up with important details of the Safeway business".

Morrisons paid cash for its £3 billion acquisition of Safeway, and starts the process of integrating the business with a balance sheet completely debt free, apart from its usual overdraft facility, and cash in hand of £206.6 million - a strong position from which to start given the inevitable increase in capital expenditure this year. The group will also benefit from the proceeds from the sale of at least 52 stores - which it is obliged to offload to satisfy the regulators - a further addition to its cash pile which should again help ease the cost of integrating Safeway.

Given Morrisons' traditional tight ship, it is unlikely that the refitting of Safeway's stores will have the same detrimental effect on sales as did the recent reorganisation at Morrions' closest rival, Sainsbury. The decision to revamp virtually the entire store portfolio in one go saw customers switch their allegiance to rival stores as a result of the constant upheavals, putting a major dent in Sainsbury's sales figures as a result.

And with any change at Safeway likely to be for the better, Morrisons should begin to feel the benefits extremely quickly, further narrowing the gap with Sainsbury whose third place in the retail rankings is looking increasingly under threat.

Related topics: Market Trends

Related news

Show more

Follow us

Featured Events

View more

Products

View more

Webinars