The news that highly-respected finance director Richard Pennycook is to leave Morrisons next year has come as a shock to the market and likely to be unpopular with the City who have long trusted Pennycook’s plan for the grocer.
Pennycook, who joined the grocer in October 2005, is credited with putting Morrisons back on track after the disastrous integration of the Safeway business.
He has had control of the grocer’s purse strings in a key period in the company’s history and, to his credit, stayed with Morrisons to devise Dalton Philips’ strategy after he was overlooked for the top job in favour of the Irishman in March 2010.
Despite the year-long notice period which allows Morrisons to prepare for his departure, Pennycook’s exit to build a portfolio career may cause the grocer to re-evaluate its strategy.
Morrisons has made a number of acquisitions recently including a seafood processing factory in Grimsby, Vion UK’s meat processing factory in Cheshire and wholesale florist Flower World to further vertically integrate its supply chain and save costs. In light of its purchase of Kiddicare and stake in New York online grocer Fresh Direct, Morrisons is clearly not afraid to invest when the gains are clear.
City analysts had trusted Pennycook’s judgement to pursue the costly strategy of buying businesses to gain improved margin.
Panmure Gordon analyst Philip Dorgan said Pennycook would be missed: “He is highly respected by investors. He is seen as the steadying hand behind Dalton Philips’ ideas and energy.
“The business was a basket case when he went in, the acquisition of Safeway had not gone well and people doubted it could ever be turned around, he can be credited with putting it back on track.”
Shares fell after Morrisons revealed the exit of Pennycook, who was last week ranked 21 in the Retail Week Power List.
So where does this leave Morrisons? In the short term, Pennycook will remain in post and hope to guide Morrisons through a highly competitive period in the grocery market as Tesco begins to mount a comeback and the Bradford-based grocer begins to leak market share.
Commentators will hope Morrisons will have its strategy for rolling out its convenience offer and will have made a decision whether to launch an online grocery offer before he leaves.
Dorgan believes Pennycook’s replacement’s appointment will be a key point for the grocer. “The impact depends on who replaces him. Morrisons are trying to do a lot they have not done before,” he says.
The news comes shortly after Sir Ken Morrison gave a speech at the grocer’s annual general meeting, questioning store standards and whether Philips’ decision to take Morrisons upmarket with its new Fresh Format was the right one.
Whoever replaces Pennycook will have big shoes to fill and a short time in which to lace them up and get Morrisons running at top speed again.