The sun has set on a long and fruitful chapter in the history of one of Britain’s biggest retailers. Morrisons’ shares have been delisted from the London Stock Exchange, 54 years after it became a plc.
The grocer has achieved plenty in those five decades, largely overseen by the legendary Sir Ken Morrison. Morrisons expanded out of Yorkshire, started its own fresh food production, acquired bakeries, abattoirs and fisheries, partnered with vertically integrated suppliers, snapped up Safeway to give it a stronger foothold in the South of England, and started selling food online.
In more recent years, under the stewardship of boss David Potts and chief operating officer Trevor Strain, Morrisons has better leveraged that vertically-integrated model to build a £1bn wholesale business - supplying businesses including Amazon, McColl’s and Deliveroo - and built stronger partnerships with British suppliers to enhance its reputation as a champion of local produce.
Now a new dawn is rising in Bradford. Morrisons has returned to private ownership for the first time since 1967 – the year Pink Floyd released their debut album, the inaugural Super Bowl was held in Los Angeles, and Dustin Hoffman made his name in The Graduate.
New owner Clayton, Dubilier & Rice (CD&R), which triumphed in a dramatic £7bn battle with US private equity firm Fortress, is already making the right noises about retaining and making the most of Morrisons’ history and heritage.
“Driving growth in a market that has emerged as one of the winners during the coronavirus pandemic will be no easy task”
And the anticipated appointment as chair of Sir Terry Leahy – formerly a colleague of Potts and Strain at Tesco and friend of Sir Ken – will add further credence to those pledges.
“I knew Sir Ken Morrison well and I understood his values and vision,” Leahy told Morrisons shareholders in the heat of the takeover battle back in August.
The former Tesco trio will be tasked with crafting such values and vision into Morrisons’ next chapter. Driving growth in a market that has emerged as one of the winners during the coronavirus pandemic will be no easy task, but Morrisons appears well-placed to do so.
Market Street and local produce is a huge strength
The food group has arguably established itself as the most unique of the big four players. Two-thirds of everything it sells is British, and rather than taking a cookie-cutter approach across its 500 supermarkets, Morrisons has sought to bring in local solutions. Yorkshire-produced “squeaky cheese”, similar to halloumi, is sold in stores in the county, for instance, while at the other end of the country it has worked with its suppliers to create Cornish camembert.
And at a time when rivals Tesco and Sainsbury’s have been closing service counters like butchers, fishmongers and delicatessens, Morrisons has maintained its Market Street offer.
Yet it does not do enough to trumpet the service and expertise that those skilled employees bring to the party - a proposition that could lure customers away from rivals.
If Leahy and CD&R are serious about maintaining Sir Ken’s values and vision, this should provide a key area of focus and investment.
Making a splash on price should come a close second on the CD&R agenda. Tesco and Sainsbury’s have both launched Aldi Price Match schemes since 2020, while Asda is piloting its ’pounds not points loyalty app in Yorkshire and the Midlands.
As the post-pandemic cost-of-living crunch hits households the length and breadth of the country, grocers’ price points and value perceptions could become a more crucial factor than ever in winning a share of the shrinking consumer wallet. Remember how Aldi and Lidl’s growth was turbocharged following the 2008 financial crisis?
Morrisons’ vertically integrated model should shield it, at least partially, from rising inflation. And it is in these categories - such as meat, fish and baked goods, in which it has the most control over production - where it could make the biggest inroads on price against its competitors.
One potential concern for the new owners could be in environmental, social and governance (ESG) – an area that is of increasing importance to shareholders and shoppers. Morrisons was voted the most environmentally responsible company in the UK for its work on plastics reduction at the Responsible Business Awards in the summer of 2019, but rivals have threatened to push past it in the sustainability stakes since then.
Tesco has led from the front, mapping out its green targets and blazing a trail by reporting on areas such as food waste. It is also trialling a reusable packaging partnership with Loop in 10 of its shops.
And others such as Marks & Spencer, Waitrose and Asda are piloting refill stations on ambient goods such as rice, pasta and cereals, while Morrisons’ Yorkshire neighbour has even launched a “sustainability store” to test initiatives such as recycling and lose fruit and vegetables.
ESG crucial for shoppers making their choice
While green Morrisons’ initiatives like its wonky veg range have performed well, it must accelerate its sustainability plans and better communicate them to a customer base that is increasingly shaping its habits around ESG. Predictive analytics firm First Insight says 65% of shoppers now identify sustainability as an “important” factor in purchasing decisions, and Morrisons cannot afford to be left behind. It has to be more innovative – and more vocal – on its sustainability journey.
Finally, there could be room for acquisitions – something that Tesco boss Ken Murphy alluded to as “non-organic growth” when setting out his plans for Britain’s biggest retailer earlier this month.
Having just splurged £7bn to get its hands on Morrisons, the CD&R capex pot may be a little emptier than Tesco’s. And even prior to the takeover, of course, Potts and Strain had focused Morrisons’ energies on “capital-light” avenues for growth, rather than headline-grabbing acquisitions.
But, particularly in a market that is undervaluing British retailers, the leadership team could sense some shrewd opportunities.
The market cap of Morrisons’ franchise partner McColl’s, which operates more than 1,200 stores, now sits at just under £56m – the lowest point since it floated in February 2014.
Although the conversion of hundreds of McColl’s stores into the Morrisons Daily format has given the grocer a foothold in the convenience market, a takeover would give Morrisons even greater exposure to neighbourhood locations that have generally benefited from higher levels of footfall and spend during the pandemic. McColl’s itself might be underperforming in those geographies, but Morrisons could have the brand recognition, product and financial firepower to inject a new lease of life into those stores.
Whatever the future holds under CD&R, Leahy and Co’s goal is to build on Morrisons’ pandemic success. Today marks an exciting new dawn – and new priorities must be tackled if it is to achieve that growth.