Morrisons today reported a 2.5% fall in like-for-like sales in the six weeks to December 30 after a poor Christmas. Chief executive Dalton Philips and chief financial officer Richard Pennycook explained to the media what went wrong and set out their plans for the future.

How do you react to these results?

DP: The challenging trading environment that we have seen through 2012 has continued. More customers are switching to other channels including online and convenience. I’m really proud of our colleagues, we went from an average of 11.5 million customers a week throughout the period to 13.3 million in the week before Christmas. We had 200,000 more customers on Christmas Eve this year in part down to reduced trading hours on the 23rd. We had 300,000 customers through the tills an hour on the 23rd and our Intelligent Queue Management system allowed us to open 1,400 extra tills. We expect market conditions to remain difficult in 2013.  

RP: Customers adjust their patterns into Christmas and shop later every year. In particular this time it was challenging as we had the two days prior to Christmas shortened. We are not pretending the numbers were sparkling and the best in the market but it’s a factor.

Is your core estate actually performing worse than the 2.5% like-for-like fall?

RP: Our Fresh Format stores are running at 4-6% ahead of the rest of the estate. The remainder of the business is a little bit worse.

Dalton, are you confident you will still be in post at the preliminaries in March?

DP: I’m 100% confident. It’s a great strategy and which is understood and supported by shareholders. It’s the right strategy, nobody questions it. We are a retailer which needs to be a more modern retailer and that’s what we are doing.

Were you disappointed at Christmas trading? What’s gone wrong?

DP: I was disappointed. They were lower than we had anticipated. What’s gone wrong? There’s three areas, the continuation of not being effective enough in communicating our points of difference, a squeeze on disposable incomes and the importance of c-stores and the online [market], which is growing at 20%.

Has the Government been inflexible by restricting trading on Sunday 23rd?

It makes it extremely difficult for customer to shop. We had 300,000 customers an hour which is about three times what you would normally see on a Sunday. People at Christmas need to get their shopping done when they have time. By 2018 I really hope they get their act together as it was a real challenge.

Have you taken your eye off your core customer?

DP: Those new channels [of online and convenience] are accelerating and important. Where we must make sure we can be competitive is in those channels. I’m confident we are doing a good job with our core customer, we have to be mindful of them.

How did Kiddicare perform over Christmas?

RP: Kiddicare sales overall were way up on the previous year and we obviously opened the first of a number of stores this year. Christmas is not the peak time of activity for Kiddicare, January is and sales are going very well.

What are your plans for online?

DP: We made a very smart investment in Fresh Direct. It is a profitable retailer, if you are profitable online you end up encouraging your core customer to use it. It’s very hard to re-platform websites, by taking time to launch you have the ability to look at all the available options for technology and fulfillment. We are not pioneering it but we may benefit from some last mover advantages. Online is still only 5% of the market.

Did Marc Bolland get out at the right time?

My predecessors have done a cracking job at building this business up to be what it is. They have done some great things over their time.

Where did you lose out to competitiors?

There were a lot of similar promotions in the market. For example, everyone ran one third off six bottles of wine or 25% off or both. They were doing £15-£17 on spirits and deals on beer and Pringles. There was a lot of ‘me too’ [promotions] out there. That’s fine but there’s more to us than that. We try and offer promotions which cut through like Collector Card and balance that with our own packing, baking, slicing, dicing, skinning, filleting – we are giving customers a reason to say ‘Morrisons has great value and does things differently’. There are shoppers who are very promotional and they move around and these are the ones we did not do well enough to attract.

Are your core customers disenfranchised? Are you losing out to Aldi and Lidl?

We are becoming a more modern retailer which is not the same [as disenfranchising]. It’s not about disenfranchising at all. 4-6% ahead is a strong number for our Fresh Formats. This is a difficult market with accelerating new channels. M Savers is growing at 40% and some of those items are 63% cheaper than they are at Aldi.