Morrisons today surprised the City with an early trading update which warned on profits and reported plunging Christmas sales. Retail Week examines what caused the slump.

Morrisons boss Dalton Philips will tomorrow be delivering the retailer’s first ever online grocery order at 5.30am. He will hope the wheels don’t come off the vehicle’s maiden voyage as they have his business over Christmas.

The Irishman was buoyant in November in making the surprise move to pledge like-for-like growth in the fourth quarter and will have been dejected to have been forced to inform of a festive sales slump which far outstripped under performing rivals today.

After spending much of 2013 citing a lack of exposure to convenience and online channels as the primary reason for Morrisons’ sales declines, Philips today admitted further factors – both its own and market-wide – had been intertwined to cause its woes.

Amongst a multitude of market-wide factors sits weak spending power. Customers do not appear to have any extra money in their pockets – particularly in the north of England which Morrisons calls its heartland – and Philips said basket sizes were not as large as in previous years.

Add to this strong Christmases in convenience and online for Tesco, Sainsbury’s and The Co-op as shoppers left it late to top-up, then Morrisons is right to cite these trends as issues but some analysts feel their magnitude has been exaggerated.

“I feel that online and convenience are not irrelevant but are not the meat and veg of this story,” Shore Capital analyst Clive Black said.

“Morrisons has moved upmarket at the wrong time with its Fresh Format and ostracised its core customers who were attracted by its value proposition,” he says. “Morrisons has to look at price and promotions and win those shoppers back, there’s no quick fix.”   

In short, Morrisons has plenty of short-term problems of its own making. Philips admitted its Collector Card offer, which had proved successful in driving loyalty when launched five years ago, was not fit for the modern market and intends to respond to rivals’ targeted vouchers with its own mechanic imminently.

Moreover, Philips believes Morrisons had failed to nab shoppers from Aldi and Lidl. “Those customers who are primarily discount shoppers normally trade up into us at Christmas but we did not see that trade up this year,” he says.

He added discounter growth is a problem that all the major grocers have to “face into” and communicating what Morrisons offers will be key in 2014. However, a failure to do this in 2013 – when both Aldi and Lidl were implicated in the horsemeat scandal while Morrisons extolled its sourcing virtues – suggests this is no mean feat.

Questions will naturally be asked about how tenable Philips’ position is. Many of his issues – limited online and convenience offers and outdated systems – were inherited but he must stand up and take his failure to deliver on promises on the chin. His consistent failure to deliver sales growth and decisions such as the subsequently inexplicable acquisition of Kiddicare and the costly Ocado deal mean many question his leadership.

Philips acknowledged the scale of the job to turn around Morrisons though. He told analysts this morning that there is “not one magic bullet” but rather the team are tackling several issues at once.

Morrisons clearly faces a raft of issues to enliven its product offer, engage with shoppers and get the tills ringing. Philips says 2014 is a “big year” for Morrisons - the likeable retail boss will have to fight to ensure it isn’t his last in the job.