The word is spreading that Morrisons are back on form.
That’s a bold declaration from David Potts, CEO of supermarket chain WM Morrison, whose digital transformation problems have provided valuable use case material for others in the retail sector, albeit in the wrong way!
Given that Potts has just picked up a milion pound bonus after a year in the hot seat, it’s inevitable perhaps that he would make such a claim, but do the facts back up the assertion?
Well, yes they do, but only just. Like-for-like sales, excluding fuel, were up by 0.7% – and by 1.2% including fuel – in the 13 weeks to 1 May, while overall transaction volumes increased by 3.1% in the quarter, on a like-for-like basis and prices fell by 2.6%. On the other hand, e-commerce only added 1% to to like-for-like sales.
The firm has taken steps to improve its online proposition. It has announced a partnership with Amazon to sell groceries wholesale, while its partnership with Ocado now allows online sales to be picked up from stores. But the final Ocado agreement is still being banged out, with Potts emphasising that it must:
profitable growth online for Morrisons.
But while maintaining a ‘work in progress’ mantra, Potts says he is pleased with the measures that he’s put in place since making the move from Tesco, including changing the firm’s Match and More loyalty card scheme last year.
Match and More was a complicated proposition. Morrisons price-matched grocery shops with a comparable ones done at Tesco, Sainsbury’s, Asda, Aldi and Lidl. The difference was awarded in points – 10 points for every 1 pence where Morrisons was more expensive than its rivals, with each point worth 0.1 pence. Once 5,000 points were accrued, customers received a £5 voucher, valid to use in Morrisons within a year.
The price-matching element was dropped. Customers now get five points for every £1 they spend and once they reach 5,000 points they will receive a £5 voucher. To put that into context. a Morrisons customer needs to spend £1,000 to get a £5 voucher!
According to Potts, this change has gone down well with customers:
I am very pleased we made the change that we made to the card. We have already said one of our key priorities is to be more competitive, that we are a value proposition, therefore price is really crucial. If we are a shop around prices that are relevant to more people when they buy the item, rather than they get a rebate once we have done a kind of check of around later, which is how the card works roughly, then I think that is the right thing for customers. It’s a simpler shopping trip basically.
Customer satisfaction remains ahead of last year. It’s in a good place. And of course, price is part of whether a customer is satisfied with their shopping. So I am happy. In terms of the card itself perhaps ironically, the percentage of our sales going through having had it scanned, has gone up a bit since we turned off the match element of that card. I imagine had we not improved the shopping trip generally, then it may not be the case, but of course, it looks like we have.
I mean maybe just people have gotten in the rhythm of using it, fair enough. Our volumes are a bit up, so it all kind of comes back around to a rising tide raises all boats.
As for that Amazon partnership, it’s still early days and Potts seems somewhat vague on the details of what has been achieved to date:
I think we have made our first sort of delivery to Amazon and that is for them to decide when to start to do the pantry, which I think is first half. Going back to our [press] release in March, we talked about in the months ahead, I think it was Prime Now in pantry. So in the end, it comes down to customers deciding they enjoy pantry, enjoy Prime Now, and then for Amazon to decide what they are ordering and then for us to provide it.
So we would have to say it’s very early days in that and we are looking forward to working with Amazon.
A lot of this seems to come back to Morrisons working to Amazon’s needs and for Amazon to make this a success. Potts adds:
It just comes back round to as food maker as well as shopkeeper, we are both manufacturer, wholesaler, distributor and retailer, really. Already half of what we sell is fresh and half of that fresh we make ourselves. iIf customers like the offer that Amazon provides, then you would expect as a supplier to Amazon, for us to benefit from leveraging that volume through our existing assets.
Whether there’s been a million pounds worth of improvement is debateable, but Potts certainly deserves credit for taking some tough decisions and managing to halt the decline that seemed a permanent state under the previous management.
Retail analysts seemed happy with progress to date. Shore Capital’s Clive Black and Darren Shirley said:
We believe that Morrisons’ management deserves considerable credit for the stabilisation achieved to date…Perhaps most important of all, the personality of Morrisons is being re-found, tailored around the Market Street proposition and the vertical integration that underpins it.
But there’s still a lack of clarity around the Amazon relationship, although as the online giant begins to eye up the UK food delivery market, Morrisons is likely better placed than many of its high street rivals inside the tent, rather than outside awaiting attack.
So, some progress, but not out of the woods yet. As John Ibbotson at retail consultants, Retail Vision, notes:
Hats off to David Potts, he appears to have stopped the rot. Lower prices and the well marketed 'Morrisons Makes It' programme has stemmed the haemorrhaging of customers to Aldi, Lidl and Asda. The once beleaguered grocer is finally moving in the right direction, although we should not hide from the fact that there is still a long way to go.