Morrisons’ profits might have fallen over the past year, but the grocer’s chief executive David Potts painted a picture of a business that has used a period of unparallelled upheaval to readjust its priorities for the future.

  • Chief executive David Potts wears Morrisons’ fall in profits during Covid crisis as a “badge of honour”
  • Online and wholesale channels both now profitable and Amazon accounting for 10% of some store’s overall sales
  • Morrisons has also added community and environment to its key list of stakeholders as it looks to emerge from the pandemic

The supermarket giant’s profit before tax and exceptional items was sliced in half to £201m during the 52 weeks to January 31, while it also tumbled out of the FTSE 100. But Potts’ response to both setbacks was unexpected. 

After pointing out that the drag on profits was sparked by £290m of Covid-related costs and the waiving of £230m in business rates relief, Potts said: “We wear, or I personally wear, the halving of profits as a badge of honour. Frankly, we could have made no profit and it would have been a result.”

He added: “I genuinely feel the company also played its full part in feeding the nation and it’s properly been a company that’s been there for all stakeholders. The Covid crisis has accelerated the new Morrisons as a truly distinctive business.” 

Potts believes operating on a “war footing” over the past year has set Morrisons up for sustained growth in the future.

Morrisons financials picture

Online evolution

One area that Morrisons has invested heavily in during the pandemic has been in scaling up its online operations. The retailer ploughed £36m into increasing delivery capacity and reshaping its ecommerce division during the financial year.

Its online delivery capacity has grown fivefold, while partnerships with Ocado and Amazon have allowed more orders to be picked and packed in stores. In some of its supermarkets, such as Canning Town, orders placed through Amazon account for as much as 10% of overall sales.  

The Bradford-based grocer has arguably innovated faster than any of its rivals in the digital space. Morrisons launched themed food boxes, as well as a telephone ordering service – already used 800,000 times – and doorstep deliveries for shielding and older customers. It has also started working with third-party fulfilment specialists like Deliveroo to offer rapid home deliveries.

Morrisons online picture

Whether or not these Covid-inspired innovations remain once the UK begins to emerge from lockdown will be down to the customer, Potts said. But Morrisons is already considering how such propositions can evolve to remain relevant as the UK slowly returns to some version of normality.

“I think all of the services that we brought in over that Covid year, we’ll just have to critically examine, to see that there’s a need in society for them,” Potts said.

“If you look at our food boxes, for example, when we started them they were basically just full of toilet roll. Now they’ve got everything you need for Easter or Eid or Diwali. It’s just up to us to keep thinking and keep doing.”

Morrisons has also launched click and collect for customers from all 407 of its cafes, as it begins to think about how it could cater for social gatherings. 

“Once we’re allowed out again, we have to think again about the service,” said Potts. “Maybe offering delivery afternoon tea or sandwich platters and other goods and services we can provide that customers and the community will find valuable.”

£1bn wholesale business

Morrisons has quietly continued to grow its burgeoning wholesale business throughout the pandemic as it better leverages its unique vertically integrated model. The grocer’s wholesale arm is now worth £1bn in its own right.  

Last week, Morrisons extended its supply partnership with c-store retailer McColl’s until 2027. As part of the deal, another 300 McColl’s stores will be converted into the Morrisons Daily format over the next three years. 

Potts said its “wholly owned and franchise stores are thriving in the communities they serve” and said their performance during the pandemic showed the “significant potential” for growth in the Morrisons Daily convenience chain. The retailer now operates 58 of its own Morrisons Daily stores and supplies 1,350 c-stores in the UK and Channel Islands. 

“None of us knows when this pandemic story ends but with vaccinations racing ahead, we now know how it will end and we’re ready for it”

David Potts, Morrisons

During the period, the retailer also expanded its ‘Morrisons on Amazon’ partnership to 50 towns and cities across the UK and is also supplying a curated range to the etailer’s first bricks and mortar foray into the UK. The checkout-less Amazon Fresh store in West London is likely to be the first of many on these shores, providing an even greater opportunity for Morrisons and Amazon to strengthen their ties.  

Potts said selling through the Amazon.co.uk platform was always “going to be a kicker to sales revenue, because it exposes us, with one or two clicks, to a whole load of Prime customers”. He added that combining Amazon’s online reach with in-store picking “drives volume into those two services”.

He added that the growth of its wholesale business despite the turbulent backdrop provided by the pandemic encapsulated the “entrepreneurial spirit running right through this company, which enables us to innovate under pressure to quickly scale ideas”.

Community and sustainability 

A theme that Potts returned to throughout his presentation was community. Whether that was the wider UK community through feeding the nation or individual stores serving local areas. 

The grocer has vowed to make “a positive impact” in all areas it serves, offer local people “a great place to work” and help customers “live healthier lives”. 

Morrisons launched its new healthy brand Nourish in January. Potts says the own-label range is “the only brand in Britain that carries an approved health claim” on every product, such as ‘good for your immunity’.

Such efforts has become so central to Morrisons’ progress over the past year that the retailer felt compelled to add ‘environment and the community’ to its list of key stakeholder groups, alongside customers, colleagues, suppliers and shareholders. Potts said, alongside its increasing work in the communities it serves, the move is aimed at properly “getting a grip on our impact” on the environment, cutting its carbon footprint and reducing waste. 

Morrisons environment focus

“Commercially, we’ve done a good job taking our suppliers forward with us,” Potts said. “We’ve taken 244 tonnes of plastic out of the business through range reviews. We’ve tightened the range, taking out duplications and tertiary items to give more space for volume. All of the work we’re doing is symbiotic with the work we’re doing around high fat, salt and sugar. 

“We’ve taken 8.6 billion calories out, 832 tonnes of sugar and 44 tonnes of salt out of some ranges.”

Earlier this week, Morrisons committed to being the first supermarket completely supplied by net-zero carbon British farms by 2030 – five years ahead of the market.

In this regard, Potts said Morrisons can be “a trailblazer” for the whole grocery sector. 

“I and the team here know we have got that special responsibility as British farming’s single biggest customer,” he explains. “The fact that we’re a vertically integrated model means we can have a lot of reach back into farming and the impact of the whole food supply chain.”

Putting people first

In January, Morrisons became the first major supermarket chain to pledge to pay all of its shopfloor staff at least £10 an hour. The move will give 96,000 staff a 9% pay rise from April, and a 56% increase from 2015 levels.

Morrisons key worker

Morrisons pledged to increase store colleagues pay to £10 an hour

“Our ambitions for colleagues include a fair day’s pay for a fair day’s work,” said Potts.

He praised “their hard pandemic work and sheer resilience” in the face of the coronavirus crisis and added: “Early on, staff were proudly recognised as key workers by the government and in the view of the British public, they have earned that title every day since.”

Morrisons has also extended the 10% in-store discount for all NHS staff until the end of 2021.

Potts said this gesture, alongside the pay rise, had improved the grocer’s brand standing in the eyes of its customers. 

Although plenty of uncertainty remains, Morrisons expects to turn a profit of £431m in its 2021/22 financial year.

“None of us knows when this pandemic story ends,” Potts cautioned. “But with vaccinations racing ahead, we now know how it will end and we’re ready for it.”

Morrisons’ profits may have taken a battering during the Covid-19 crisis but as the health emergency subsides, the progress Potts wears as a “badge of honour” has put the grocer on the right path for post-pandemic success.