The Independent

Morrisons has a lot of debt to manage as inflation soars

- JAMES MOORE CHIEF BUSINESS COMMENTATO­R

Is it time to worry about Morrisons? The grocer recently picked up some nice headlines by announcing plans to cut the price of meals in its cafes. But that can’t disguise the fact its other prices – the day-to-day ones that count – are higher than those of its main rivals.

The most recent survey of 48 staples by the consumer website Which? put Asda, Tesco and Sainsbury’s in a bunch, with the price of their respective baskets ranging from £84.98 to £86.36. Morrisons, however, was an outlier among the traditiona­l “big four” at £92.72, much closer to Ocado (£93.99) than to its peers.

The group did better when the sample was expanded to 148 products, coming in third (£367.12) ahead of Tesco. But that isn’t saying much. It was also toward the bottom of a separate price tracker produced by Alertr, where it was once again closer to Ocado than to Asda at the head of the table. Consumers appear to be taking note. The latest update from Kantar’s monitoring of the grocery purchasing habits of 30,000 demographi­cally representa­tive households showed that Morrisons was the only member of the traditiona­l big four to lose sales.

The 4.6 per cent decline is worse than it looks. Food price inflation – at an ugly looking 14.7 per cent – should boost the headline sales figures of all the big grocers. For Kantar to record a fall at Morrisons suggests that it is doing very badly. This is borne out by the group’s market share. It is no longer even strictly correct to call it a member of the “big four” because Morrisons has surrendere­d its fourth place to Aldi, the fastgrowin­g discounter. It might not be all that long before Lidl pushes Morrisons down to an ignominiou­s sixth.

Sir Ken Morrison, the plain-speaking Yorkshirem­an who turned the family business into a supermarke­t giant, must be turning in his grave. Under his stewardshi­p, Morrisons enjoyed a reputation for value. Of course, the group’s ownership has changed. Stock market flotations, mergers and then takeovers have all featured in Morrisons recent history, culminatin­g in last year’s bitterly contested bid battle between a pair of private equity consortia. Clayton, Dubilier & Rice kicked off proceeding­s at £5.5bn but ended up paying £7bn to see off the Fortress Investment Group and take its trolley through the goldplated checkout.

Asda, meanwhile, swapped Walmart’s ownership for a private equity firm of its own, in the form of TDR Capital, which backed the successful takeover by the billionair­e Issa brothers, best known for their petrol forecourts. Since then the trajectory of the two businesses has been strikingly different, with Asda having retained its keen pricing. Morrisons, for its part, has emphasised its fresh food offer in a bid to differenti­ate itself from its rivals. In addition to those cafes, it has retained its instore counters. Fishmonger­s and the like. But they are expensive to maintain. Its rivals have largely done away with them for that reason.

A “premium” strategy can work for you when the economic situation is favourable, if the quality is high enough (as Morrissons is). However, right now the economic outlooks is anything but. The level of food price inflation found by Kantar would add a shocking £628 to the average customer’s bill. The number of people who can afford to ignore numbers like is limited to CEOs, Premier League footballer­s and City folk, none of whom fit the descriptio­n of the average Morrisons shopper I’d wager.

The formerly fast-growing Ocado and its one-time partner Waitrose, both of which are pricier still per the surveys, are also

Sir Ken Morrison, the plain-speaking Yorkshirem­an who turned the family business into a supermarke­t giant, must be turning in his grave. Under his stewardshi­p, Morrisons had a reputation for value

showing signs of struggle. In Kantar’s analysis, sales at the former were flat while they were in decline at the latter, albeit not to the same degree as Morrisons.

Of the pair of private equity-owned grocers, Asda is clearly the one that appeals to shoppers in the current climate. Maybe it is time to wonder whether Morrisons needs to perform a strategic volte-face. But does it have the financial room to do so? That remains to be seen. Debt is getting expensive and Morrisons has a lot of debt to manage.

So does Asda, which is not exactly free of troubles of its own. Its prices might be low but its workers say that their wages are too. They are threatenin­g strikes. And all that with few signs that food price inflation will fall quickly.

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 ?? (PA) ?? The supermarke­t was the subject of a private equity takeover last year as pricing surveys show the retailer is surrenderi­ng both sales and market share
(PA) The supermarke­t was the subject of a private equity takeover last year as pricing surveys show the retailer is surrenderi­ng both sales and market share
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