Morrisons
Wm Morrison Supermarkets plc () is the
fourth largest chain of
supermarkets in the
United Kingdom. The company is usually referred to as
Morrisons and it is part of the
FTSE 100 Index of companies.
Morrisons was founded by
William Morrison in 1899, initially as an egg and butter merchant in Rawson Market,
Bradford, England. His son
Sir Ken Morrison is now executive chairman of the company.
From the early 1900s the company used the name
Wm Morrison (Provisions) Limited. Sir Ken took over the company in 1952, aged 21. In 1958 it opened a small shop in the city centre, followed by its first supermarket "Victoria", in the Girlington district of
Bradford in 1961. In 1967 it became a public company listed on the
London Stock Exchange.
As of June 2006 Morrisons has 356 superstores in the
United Kingdom, including those it has retained following its purchase of
Safeway (see below). Until 2004, Morrisons superstores were largely concentrated in the English
Midlands and the north of
England, but had expanded southwards, beginning with a store at
Erith,
Kent, which opened in 1998 [
1]. Most Morrisons stores operate from large superstore formats selling a wide range of products including the core groceries.
In May 2006, Sir Ken announced he is to step down as executive chairman in 2007/2008 after serving with the company for 54(55/56) years. The following month, it was announced that Marc Bolland, the Dutch chief operating officer of
Heineken had been appointed as the new chief executive of Morrisons.
Morrisons is now one of just four supermarket chains that dominate the full-size superstore market in the United Kingdom. In descending order of size the other three are
Tesco,
ASDA (owned by
Walmart), and
Sainsbury's. Morrisons strategy is based on doing the basics efficiently, selling predominantly food at low prices, and doing so only from large stores. This is a different approach from the other three big chains: Tesco and Sainsbury's in particular have moved into "retail services" such as banking; the same two companies are expanding into the
convenience store sector; and Tesco and ASDA place great emphasis on their non-food ranges and are experimenting with stand alone non-food stores.
The Morrison family currently own around 18% of the company, compared to the 30% they owned before buying Safeway plc in March 2004.
Some analysts have expressed concern that Morrisons value-focused marketing may not be as successful in affluent parts of
Southern England, as they are in the company's traditional
northern heartlands. At the 2005 annual results briefing, Sir Ken Morrison informed investors, "I don't know what a
middle class shopper is."
TradingIn January 2006, Morrisons announced that sales at former Safeway stores were up 9% in the last six weeks of 2005, with sales at the core Morrisons estate down by 0.7%. The overall figure was a sales rise of 2.8%.
The company also announced a £30 million one-off charge for the closure of former Safeway depots in Kent, Bristol and Warrington with the loss of 2,500 jobs. The Kent depot has since been sold to upmarket rival
Waitrose, whilst Warrington was apparently sold to frozen food rival
Iceland (supermarket). The Bristol depot is currently being marketed 'To Let'.
In March 2006, Morrisons announced that sales at its 378 stores trading in the first 7 weeks of its new financial year were up 3.2%.
By the first 16 weeks, (including the seven weeks above as well), however, the rate of momentum increased when sales rose 3.7% at the then 378 trading stores. (Now 356 stores).
After taking into account new stores opened in 2005 and the effect of store disposals, the increase was 5.5%.On 3rd August 2006, Morrisons provided a sales update in advance of its interim results which will be announced on 21st September, 2006.
Like for like sales in the 25 weeks to 23 July continued the growing trend, increasing by 6.6% (4.6% excluding fuel).
Like for like sales in core Morrisons- stores operated by Morrisons before the Safeway takeover- continued to improve, as they have in the converted stores, including those that are now in their second year of conversion.
Sales generated through new space contributed an additional 1.9% (1.9% ex fuel).
Total sales increased marginally by 0.1% (decreased by 2.2% ex fuel), reflecting the impact of the significant store disposal programme undertaken last year.
In the 9 weeks since the AGM like for like sales have increased by 7.5% (6.1% ex fuel).
At the time, Sir Ken Morrison, Chairman said "The board is pleased with the progress being made towards the delivery of our Optimisation Plan targets; in particular our goal to improve gross margin by 90bps over 3 years, which is being delivered ahead of plan."
On
8 March,
2004 the takeover by Morrisons of Safeway plc was completed (See the
Safeway entry for full details of this deal). Stores under the Safeway brand were concentrated in the south of England and
Scotland, thus giving Morrisons a nationwide presence for the first time. Morrisons proceeded to rebrand the supermarkets under its own name and the convenience stores were initially rebranded as "Safeway Compact". Most larger Safeway stores were converted to the Morrisons
Market Street format, while others were sold off
(see below).
The programme of conversions was the largest of its kind in British retail history, focusing initially on the retained stores which were
freehold, over 25,000 sq ft with separate car parks. Within a few weeks, Safeway carrier bags were replaced by those of Morrisons and the new owner's own-brand products began to appear in Safeway stores.
The best parts of the Safeway own-brand offer, such as "The Best" range of high quality foods, and "Eat Smart" range of healthy foods, were adopted across the Morrisons chain, along with many former Safeway products. 'The Best' range offers a wide variety of more upmarket products (food or otherwise) which are available in all stores. These own-brands go alongside the original Morrisons store brands such as
Bettabuy, Morrisons' range of economy products.
In July 2004, Morrisons shocked the stock market with its first ever profits warning, largely caused by falling sales at Safeway stores. It emerged that Safeway had changed its accounting system just three weeks before the takeover and inflated its books by taking early bonus payments from suppliers, thus creating a deficit in excess of £180 million when the Morrisons accounting system was applied.
There was much initial controversy surrounding who was to blame for the early problems in integration. Morrisons and Safeway applied supplier commission at opposite ends of the scale - Safeway at the beginning of a deal and Morrisons at the very end. Safeway insiders claimed that the new accounting system had been in production for over two years prior to the takeover and said that Morrisons had full knowledge of the change in system before their takeover.
One problem for Morrisons was its radically different approach to people management. Under Safeway, store managers at a local level were given the power to plan their own promotions, stock certain items, vary prices according to local competition and even recruit additional staff; recognising the differing needs of different localities. Morrisons, on the other hand, operated a strict policy of uniformity across all its stores, with the same ranges and pricing regardless of location. While Morrisons retained its northern bias, this strategy worked well, but was less suited to the more diverse siting of former Safeway stores. The product policy has now been loosened slightly, although pricing is still centrally controlled and managers have nothing like the flexibility they enjoyed under Safeway.
It has since been admitted by Morrisons itself that the in-house finance team was ill-equipped for the task of integration and management of the newly enlarged business, which contributed in part to the early problems and profit warnings.
Converted stores now show sales up around 20 percent under the Morrisons fascia.
Originally 52 stores were to be compulsorily divested after the takeover, but this was reduced to 50 after one Safeway store in
Sunderland was burned down and the lease ended on another in
Leeds city centre.
John Lewis Partnership purchased 19 to be part of its
Waitrose chain, while
J Sainsbury plc purchased a further 14, and Tesco bought 10 in October 2004.
In late 2004 it was announced that the 114 smaller 'Safeway Compact' stores were to be sold off to rival supermarket chain
Somerfield in a two- part deal worth in total £260.2 million. One of the main reasons was the Morrisons 'Market Street' store format, which is better suited to larger stores, while Somerfield better known for smaller outlets. Also, Morrisons' senior management had realised that the challenge of integrating the larger stores would keep them fully occupied in the short term.
In
Northern Ireland all of the Safeway stores were sold off, most of them to
Asda. This included a store in
Bangor which actually opened after the Morrisons takeover.
Morrisons continued to sell and close stores - not covered by the Competition Commission ruling - which it felt did not fit with the scale and layout of its
Market Street format. In total, 247 stores were sold off by July 2006, leaving the chain with 356. The largest single purchase was that of five stores by Waitrose, bringing the firm as far north as
Durham for the first time. Unlike other operators, most notably Tesco and Sainsbury's, Morrisons has chosen not to move into the
convenience store sector.
On
July 18,
2006, a further six stores from the 'rump' format were sold to Waitrose, including the former Safeway store in
Hexham,
Northumberland, which will become the most northerly Waitrose branch in England.
In May 2005, Morrisons announced the termination of Safeway's joint venture convenience store/petrol station format with
BP. Under the deal, the premises were split 50/50 between the two companies. Five sites were subsequently sold on to BP, while Morrisons sold the rest of its sites to
Somerfield and Tesco, which both maintain a presence in this market sector.
Morrisons also sold Safeway's Channel Island stores, in Guernsey and Jersey, to CI Traders. The Douglas store was sold to Shoprite, the Ramsey store was sold to the Co-op, but the Gibraltar store is no longer being marketed for sale, instead opting to carry the rump format.
The format of most Morrisons superstores is called
Market Street. The meat is near or next to the butcher's counter, the
delicatessen being traditionally named
Provisions with cheese fridge nearby and a rottisserie counter named
Oven Fresh. There's a Pie Shop in every store and a bell rings when a fresh batch comes out of the oven. The overall theme is based on an early 20th century street setting in the north of
England running around the edge of the store, with more conventional aisles in the centre.
Most Morrisons superstores are typically between 28,500 sq ft and 36,000 sq ft, with an increasing number above 36,000 sq ft, offering food, homewares, some essential clothing (ie. socks, underwear), cafés and petrol stations. A number of Safeway stores retained by Morrisons were between 15,000 sq ft and 25,000 sq ft. These are referred to internally as the 'Choice' format, stores which do not have shopfront-style counter facades, but simply signs proclaiming the name. Morrisons hopes to replace or expand these stores to make room for the full 'Market Street' format in the future.
The 'Rump' format are the same size as 'Choice' stores, but just carry the Morrisons outer logo signs, staff uniforms, product lines and IT Systems, while otherwise remaining largely as they did before the takeover of Safeway. Certain items within the stores, such as checkout dividers, car park signs and some internal signage, have simply had the Morrisons logo applied over the Safeway logo and can still clearly be identified as
Safeway, whereas all evidence of the old brand has been removed from other stores. These stores are earmarked for divestment or replacement in the very near future.
All three formats trade simply as Morrisons, so there is no obvious way to tell them apart unless you know what to look for. A regular Morrisons shopper, used to the company's policy of uniform pricing and stock across all its stores, might notice a smaller product range at a "Choice" or "Rump" store, mainly due to the space constraints.
Morrisons products are primarily marketed under two slogans,
"More reasons to shop at Morrisons" and
"The very best for less". The
more reasons campaign is backed up with separate adverts explaining numbered "reasons". There are usually a large range of
special offers in each store. The company is perceived to trade towards the lower end of the mainstream supermarket sector, offering value above choice and premium quality.
By June 2005, Morrisons had issued five profit warnings since its takeover of Safeway. Sir Ken Morrison stood down as chairman of the operational board, but remained executive chairman of the main board. In July 2005, Morrisons released figures that suggested it may have turned the corner, with a 14% sales increase in converted Safeway stores. The last Safeway stores were converted by
24 November 2005, when the Safeway brand disappeared from the UK. [
2]
With the conversion of Safeway complete, Morrisons is now faced with the need to rebuild its credibility in the city and re-establish the core strengths of the brand.
As of February 2006, the company's share price has risen above 200 pence and there is a feeling among analysts [
3] that the corner has been turned since the completion of the Safeway conversion programme.
In March 2006, Morrisons launched a three- year 'Optimisation Plan' aimed at cutting costs to ensure future profit recovery. This includes £60m worth of cost savings in distribution and support functions, as well as adapting the smaller 'Choice' format stores below 25,000 sq ft, representing 40% of the store estate, to fit with local demographic and cultures. The 'Health & Beauty' range is also being re-launched.
Integration costs in 05/06 were £374.9m, leading Morrisons to report a loss of (£312.9m). A pre-tax profit of £61.5m is an 81% drop on the £332.2m the company made in 2004-05.
Like for like sales in the 25 weeks to 23 July continued the growing trend, increasing by 6.6% (4.6% excluding fuel).
In the 9 weeks since the AGM like for like sales have increased by 7.5% (6.1% ex fuel).
The new Morrison head office at Hilmore House in Gain Lane,
Bradford,
West Yorkshire, opened in June 2006.On the 2nd July 2006 a report in
The Observer newspaper suggested that Morrisons could be the target of a £6 billion bid from a consortium of private equity firms including
Texas Pacific,
CVC and
Permira. [
4]
In August of 2006, a
Daily Star business section reported that Morrisons was finally beginning to recover from the damages caused by the Safeway takeover.
*All new-build Morrisons stores include a clock tower, usually above the main entrance. This means that most former Safeway stores can be identified by their lack of this feature.
*In 2001, when discussing takeover speculation surrounding Safeway, Sir
Ken Morrison described his then-rival as an "indigestible meal".
*Morrisons buys, packs and distributes all the fruit and vegetables sold in its stores.
*Morrisons owns the Farmer's Boy food factory (also in
Bradford), producing pizzas, pies, cooked meats and sausages, as well as packing cheese and bacon for sales in stores.
*The chain also operates two meat processing facilities where beef, pork and lamb are prepared and supplied direct to stores.
*Morrisons operates a distribution network composed of in-house and third party comntractors, the biggest external service provide being being
DHL Exel Supply Chain.
*
Safeway (UK)*
Supermarkets in the United Kingdom*
Company website*
Morrisons Employee Forum*
Morrison's problems Daily Telegraph, June 2005
*
Safeway Archive*
Morrisons plunges deep into red BBC,
20 October 2005.
*
Sir Ken has grocer back on track The Guardian,
23 February 2006*
Green leaves Safeway door open; GuGudian Unlimited;
31 October 2003*
Morrisons in £3bn bid for Safeway; BBC;
15 December 2003.
*
John Lewis buys stores from grocer Morrison; Reuters,
25 March 2004*
Morrisons turns off Safeway supply chain systems; Computing,
29 June 2005*
Safeway disappears after 43 years BBC News,
23 November 2005*
Maggots found in Morrisons Produce
