Despite reporting a slump in profits for the first half of the year, Morrisons was bullish on its full-year profit guidance, saying it would be higher than the £431m it reported in exceptional circumstances last year. 

PREFERRED David Potts profile shot

David Potts

The grocer’s optimism comes despite facing tough sales comparables year on year and a diverse set of macroeconomic headwinds, which are predominantly out of its control. 

The results also come at a time of acute uncertainty, with Morrisons being the subject of competing bids from rival private equity and investment players Clayton, Dubilier & Rice, and a consortium fronted by Fortress.

Chief executive David Potts and the Morrisons board could be forgiven for wanting to put a positive spin on a disappointing set of results with two suitors in the wings. 

“We think those occasions – from around Halloween through to Bonfire Night, Christmas and the January Sales – should be on the bullish side for the industry and for Morrisons”

David Potts, Morrisons

In order to achieve its full-year guidance, Potts says he is expecting a much stronger golden quarter this year than last – when spiking Covid cases and rolling restrictions kept many people from celebrating with family and friends.

“Morrisons traditionally does a bit better in half two, not just because of Christmas, but the golden quarter more generally. We think sales in half two should be fair, particularly as this Christmas consumers can get together in bigger groups,” he says.

“There was a slight sense last year that Halloween was cancelled and also Christmas was slightly tighter. So we think those occasions – from around Halloween through to Bonfire Night, Christmas and the January Sales – should be on the bullish side for the industry and for Morrisons.”

Potts also believes Morrisons has room to grow online sales, despite the last three Kantar market share figures showing a decline in ecommerce food sales across UK grocery as people return to stores and restaurants.

He points to Morrisons’ growing partnerships with Amazon and Deliveroo as drivers of future growth and says regaining capacity with Ocado from its Erith distribution centre will be a boon.

Not content to rest on his laurels, though, Potts is looking to explore further partnerships including one with Uber Eats to cater for its Morrisons Daily stores and franchises. 

He says while ecommerce penetration is coming down from its pandemic peak, average basket spend has increased from pre-Covid and customers who tried the service for the first time last year are still using it.

On where he sees ecommerce penetration settling, Potts says: “It’s in the hands of the consumers in the end but I imagine it’ll be more than it was and less than it is.”

Inflationary pressures

Potts warns that ongoing issues like the HGV driver shortage and the global rise of shipping costs from Asia will lead to some price inflation for customers.

However, he was keen to outline how Morrisons is trying to mitigate the issue so consumers do not feel the pain. 

Morrisons lorry on motorway

Morrisons has asked staff if they want to learn to drive HGVs

“Goods from Asia that come in freight containers [have] gone up tenfold in price year on year,” he says. “Some of the commodity costs around wheat and dairy will feed through to some price rises.

“We’ve gone from slight deflation at the beginning of half one to slight inflation at the end. I’d expect that to tick up a little more.

“We’d expect to be in an inflationary environment in half two but not dramatically. Some of it is in the system now and some of it will be mitigated by price competitiveness in the market.”

He hints that Morrisons would look to rationalise its ranges “a little bit” and “push more volume through” on other items. He also says its promotional package “may have to strengthen a bit” to offset inflation. 

“We’re not going to be bystanders on this on behalf of our customers,” he adds. “We are going to be competitive.”

Driver shortage a ‘real problem’

Potts describes the HGV driver shortage in the UK as “a real problem” for Morrisons and the country but says the grocer is taking steps to counter supply chain disruption where it can. 

He says: “We have reduced the number of secondary deliveries we’re sending to stores by sending fuller vehicles when we do deliver to our stores. And then, when those vehicles that are freed up, we are sending those to our suppliers to pick up our gear and bring it back to our central depot.”

Potts says Morrisons has also been using “double-decker” trucks to double the loads that one driver can deliver and sending drivers directly to pick up stock from suppliers to mitigate the need for third parties to deliver it.

Both Morrisons and Potts back industry calls for the government to open up temporary working visas for HGV drivers from Europe – a move that was knocked back.

In a bid to go beyond the finite HGV driver pool, Potts says Morrisons has taken the drastic measure of asking its staff if they would like to drive lorries.

“You need to drive and deliver, and how long this goes on depends on the solutions found by the industry, by this company and by the government”

David Potts, Morrisons

“We’ve had a number of applications but clearly they need to be trained. It’s an important job, as I think society is discovering,” he says.

“We don’t want it to become institutionalised. The country relies on shorter lead times, fresh food and safe food, and immediate deliveries. That’s how the world works and it doesn’t happen by osmosis.

“You need to drive and deliver, and how long this goes on depends on the solutions found by the industry, by this company and by the government.”

Quite how much of Potts’ optimism for the second half of the year comes from putting on a brave face for circling suitors remains to be seen.

Given the complexity of the headwinds the industry is facing, and how out of its hands they really are, Morrisons will not be able to put a foot wrong in the second half if its Christmas wishes are to come true.

GOLDEN_QUARTER_2021_CRITEO_DHL_TRUELAYER

  • Get the latest grocery news and analysis straight to your inbox – sign up for our weekly newsletter