Morrisons - signs of omni-channel life?
- Summary:
- Morrisons just turned in its first sales increase in five years - signs of life driven by an omni-channel turnaround? Perhaps.
Despite the sorry history of the supermarket’s digital progress and the poor impression that its online shopping experience had on Dennis Howlett, there may just be some signs of turnaround at Morrisons on the back of a more savvy approach to omni-channel.
The Bradford-headquartered chain just turned in its first rise in sales and profits for five years. At £16.3 billion for the year to end January, revenue was 1.2% up on the same time last year, while pre-tax profits of £32.5 million were up 49.8% year-on-year.
Now, one set of decent numbers doesn’t mean that all the problems are behind the firm, but after the turbulent times Morrisons has had of late, a small hurrah might be permissible. But CEO David Potts is keen not to get too carried away:
It’s only one year. Our turnaround has just started, and we have more plans and important work ahead. If we keep improving the customer shopping trip, I am confident that Morrisons will continue to grow.
The chain’s best-known online alliance to date has been with Ocado, which powers the Morrisons.com operation. This is on track, according to a company trading statement:
With our partner Ocado, we continue to provide industry-leading customer service metrics for on-time delivery and order accuracy. We are working together to keep improving the profitability of our existing Morrisons.com offer out of the Dordon customer fulfilment centre (CFC).
The Ocado relationship will be expanding, adds Potts:
We’re working with Ocado to deliver profitability from our existing dot com business service from Dordon, as average item price, drop densities and better mix combine to improve profitability. We’re looking forward to a bigger online business with the opening of Erith depot and the development of store pick, both with Ocado.
Among the other online partnerships Morrisons has struck, is a relationship with Amazon, which delivers the former’s groceries as part of its Amazon Fresh service. Morrisons also has Amazon lockers in more than 400 stores, enabling customers to collect goods ordered via the internet giant. Potts declines to go into much detail about how the Amazon relationship works commercially, but sees it playing an ever greater role in the future:
We have our own commercial arrangements with Amazon. It’s their customers. We sell into them with a margin and it works perfectly well for us. I think in terms of will that become meaningful to the company, then in the end that’s up to Amazon’s customers, whether they like the services that Amazon provides.
Since we started the relationship, though, I think, first of all, it’s working well between the two companies. We’ve gone, I think, from three channels to five. Our relative sales, the way it works, it seems to go up most weeks, so if you go right back to base, we’re around 75% up in volume since we started. On one of their channels, I think 18 of the top 20 items, it’s own-brand Morrisons that are at the top line.
Again, pragmatic caution is the keynote for Potts:
From our side, I think steady as she goes, and it’s something I’m looking forward to more growth from. I see more postcodes coming into that. Again in the end, it is their call, how they want to take that forward. But what is called Morrisons-at0-Amazon is popular with customers. It’s especially popular on Sundays; I think 10% of the week is Sunday.
That’s just an indication that customers quite like this idea that the delivery comes quite soon and it’s a convenience, it’s a digital convenience. It’s like an online convenience operation. So, again, for us it looks like it’s a good way of getting our brand profitably into the hands of more consumers through a brand that customers seem to like, Amazon.
Coming up also is an expansion of a trial with Doodle, the parcel courier company, for click-and-collect in-store.
Order improvement
Behind the scenes, tech investment is paying dividends as well, says Potts. A new automated ordering system is being rolled out which boosts availability and frees up staff time to serve customers. This is resulting in better customer satisfaction scores. Potts explains:
Our biggest new initiative has been our ordering system. During the second half, we introduced automated ordering to all our stores, initially in grocery and fresh categories, in time for Christmas. It’s capital light, using cloud technology and store-specific historic sales data to forecast stock requirements.
This is a first for Morrisons. Results so far have been encouraging. It’s simple to use, saves colleagues’ time. Stock levels are down and availability is improving all the time. It’ll be introduced across all product groups this year except clothing. And it’s great news all round. Our new team responsible for local solutions, marketing and events are making good progress. A local choice is always popular with customers.
The Company has delivered over £1 billion of cost savings in the past three years, and has more to go for. For example, ordering itself will make the Company more productive, as well as more competitive. And we’re reducing our in-store administration with the aim of removing, halving, digitizing, much of what we do.
My take
It all sounds good, but for a quick shot of realism, online sales still only contribute 0.9% of total sales for Morrisons. The focus is still very much on the offline aspect of omni-channel, getting buyers into the stores. Potts sees room to open more stories in parts of the UK that are either not served by or under-served by physical Morrisons presence.
With that in mind, there’s also great emphasis on adding to the appeal of such locations with additional services, such as upgraded cafes, Timpson key-cutting concessions as well as Amazon lockers and the forthcoming Doddle courier outlets. Whether that's enough to win back Dennis Howlett's business, we'll have to wait and see...