Morrisons has unveiled improved Christmas trading but shown the door to boss Dalton Philips. Retail Week examines the grocer’s plans for the future.

Fresh and price will be a focus for Morrisons' new leadership team

Dalton Philips’ position at Morrisons has looked unstable for the past couple of years. With every falling quarterly sales update came a chorus of observers asking how long the Irishman could keep holding on.

This morning Morrisons bit the bullet and asked Philips to step down. But eyebrows have been raised because the decision was not accompanied by a strategy change.

Far from it. Incoming chairman Andy Higginson says he’s perfectly happy with the strategy implemented by Philips and his team last March. In fact, he describes it as brave and points out that Morrisons was the first retailer to launch a massive price investment in recognition of the discounter threat.

That strategy also included revamping IT systems that had been under-invested, selling non-core assets including Kiddicare, focusing on fresh food and cutting costs. Under Philips, Morrisons has also launched online and convenience arms after being late to the party on both fronts.

Higginson is full of praise for Philips’ plan, which looked as if it may be beginning to bear fruit; sales are still in negative territory, but they are on an improving trend.

“Dalton has been in the role for five years and done a good job in difficult circumstances,” says Higginson. “As we sit here today the strategy is well set. The main thing is to build on the very good work launched in March. Our task is to return the business to growth.”

So what can Higginson and his yet-to-be-appointed chief executive do differently to restore growth at Morrisons?

The grocer should focus on volumes, revitalise its supermarkets and push its fresh offer, Higginson argues.

Driving volumes

Volumes will become ever more important in a market where sales values are driven down by self-imposed price-cutting. “We need to get volumes moving, it’s the lifeblood of the supermarket industry,” says Higginson. “The objective will be to drive volume growth, like-for-like growth then profit growth. A lot of that will be around price but also innovating for customers.”

And volumes look to be moving in the right direction. Items per basket were down 0.2% in the six weeks over Christmas, but that was better than the 2.4% year-on-year decline in the third quarter. The number of transactions improved as well, from a 3.3% fall to a slip of 1.7%. Some analysts have insisted though that Morrisons should be using shopper numbers as a key metric rather than number of items in the basket.

Investing in supermarkets

Higginson says supermarkets must be the “key focus” because that is where Morrisons’ customers predominantly shop. “Online and convenience are for the future, but near-term it’s all around our core supermarkets,” he says.

He indicates that there is an opportunity for Morrisons to differentiate from Aldi and Lidl on store experience. “I don’t fear the discounters. It’s not a great shopping experience. We have a great opportunity to trade against them. Morrisons has got a great chance to be one of the winners in the sector,” Higginson maintains.

Morrisons is to close 10 of its loss-making supermarkets, about 80,000 sq ft of space, as it seeks to focus on generating profitable sales from its supermarkets.

Fresh focus

Philips certainly tried to push Morrisons’ fresh credentials - everyone remembers his ‘misty veg’ idea which failed to win over Morrisons’ customers – but Higginson believes more can be done to leverage what he calls the grocer’s point of difference.

“Fresh will be at the core of everything Morrisons does,” he says. “Morrisons is the most distinctive [of the big four] in many ways. It’s in control of its own supply chain, its focus on fresh; we need to make more of that. It’s a point of difference for us.”

Experience is key

Despite the fact Higginson admits that Philips’ strategy was largely correct, he says he wants a “fresh pair of eyes” to lead Morrisons’ next phase. Higginson says that chief financial officer Trevor Strain was the only viable internal candidate, but that after a “good conversation” it was decided he would stay in his role for now.

So the board is looking externally, and Higginson isn’t worried about being able to find someone who is up to the job: “This is a great business, we can attract great talent.” But he adds: “It’s probably not a job for people with L plates on, we’re looking for people with experience. This is the most competitive food market in the world. We want someone who has a strong idea of what needs to be done.

“This is not a quick fix. Supermarkets have undermined some of the trust of customers in their price architecture, and that’s allowed Aldi and Lidl to press on. Correcting some of that is a long game.”

Philips’ next move

As for Philips, he is sanguine about the whole affair. “This is clearly a sad day,” he says. “But when you get tapped on the shoulder by the board you accept it and move on. I’m proud of what we’ve achieved in the last five years. And five years is a long time. It’s hard to ever know when the right time is. You make some decisions that are right, you make some decisions that are wrong.”

He plans to spend some time recharging his batteries in Ireland before thinking about his next step.

No doubt he will be looking as closely as anyone at the new leadership’s first moves to get growth going again at Morrisons.