Morrisons chief under fire as its profits fall under private equity
MORRISONS chief executive David Potts is under pressure to revive the supermarket chain after its performance deteriorated under private equity ownership.
Senior grocery market sources said he urgently needs to cut prices and arrest a sharp decline in market share, or risk being ‘punished’ further at the tills by German discounters Aldi and Lidl.
One said the Bradford-based chain’s involvement with private equity had ‘on the face of it at best been a distraction – and at worst a bit of a disaster’.
‘Its market share is dropping at a frightening rate. The inescapable conclusion is Morrisons’ involvement with private equity has had an all too obvious and unfortunate impact on the business,’ he added.
Profits at the grocer halved in the three months to July. Then, last month, it lost a key executive, finance expert and chief operating office Trevor Strain, who stepped down after a decade at the firm.
Potts is battling a ferocious assault from the German discounters on one side and bigger homegrown rivals – Tesco, Sainsbury’s and Asda – on the other.
It is now only the fifth biggest grocer after being overtaken by Aldi over the summer.
Analysis of market share data by The Mail on Sunday reveals that Morrisons began losing ground the month after it received a flurry of approaches from private equity firms in summer 2021.
The decline accelerated in summer this year, just weeks after competition authorities gave the green light to full control being given to Clayton, Dubilier & Rice (CD&R).
Morrisons’ market share has fallen to just 9 per cent from a high of 10.4 per cent in the months before the deal emerged last summer, says data firm Kantar. It is now the worst for 17 years.
Industry insiders say it could continue to slide without drastic action.
Morrisons’ shareholders agreed to the £7billion takeover by CD&R last autumn amid warnings that loading the business with debt would dull its ability to cut prices and compete. Morrisons is now contending with a debt pile of £6.6billion, including money borrowed to buy the chain.
Interest rate rises could soon add £100 million to its annual payments. It is also contending with the costof-living squeeze on consumers and sharp rises in costs.
Morrisons is poised to seal a deal to buy convenience store chain
McColls, which could bump up its market share by 0.8 per cent. But analysts will be looking for a fundamental improvement in performance at the core Morrisons chain.
One added that discount retailers B&M and Home Bargains have also recently been taking market share from Morrisons in some areas.
Ironically, former Tesco chief Sir Terry Leahy, the CD&R executive drafted in as Morrisons’ new chairman, was formerly B&M chair.
Morrisons’ food supply operation means inflation hits its own brand products faster than rivals who tend to pay their suppliers a price set months earlier. But experts still say more needs to be done if it is to compete during the festive rush.
Bryan Roberts, insights leader at grocery industry body IGD, said rivals Tesco and Sainsbury’s are sending ‘a clear message to customers’ that they are determined to fend off Aldi and Lidl with price matching campaigns. He added: ‘Morrisons used to be famous for its promotions. But it now feels like there is not the sharpness on price there used to be. Everyone is now banging the price drum, so it has become difficult for Morrisons to stand out.’
He said Morrisons is trying to achieve ‘some price assurance’ to shoppers with its price-cutting campaign but it needs to go further.
Roberts added: ‘They do have some other real unique selling points. They are the only ones that really have produce counters.
‘They are the only ones that make food in their own factories and it puzzles me why they have never made more of that.’