Interview Synopsis

Morrisons – 2022 growth outlook

  • Credit
  • Consumer
  • Europe

This month, British supermarket Morrisons completed its takeover of collapsed convenience store chain McColl’s. In an Interview with Third Bridge Forum, a former senior executive at Morrisons told us the takeover is “on the face of it… a good deal” for the supermarket.

What next for Morrisons after takeover of McColl’s?

In the Interview, the specialist said they were unsurprised by Morrisons’ takeover, given it has already been wholesaling in McColl’s for a number of years. The specialist expects Morrisons to convert approximately half of McColl’s estate into Morrisons Dailys, and the rest will be either closed or operated as a McColl’s newsagent. The links McColl’s has to Motor Fuel Court is also considered a “good opportunity” for Morrisons, which could result in the supermarket partnering with the petrol station operator. 

The specialist also discussed the current impact of inflation on supermarkets and consumers. We were told that the Russia-Ukraine conflict, as well as the current supply, labour, freight and energy crises, have amalgamated into “the most intense and difficult period of cost inflation in living memory”. For supermarkets, the specialist said all cost rises are likely to be passed on to consumers and expects supermarkets to both lower and refocus their promotional spend. Retailers will also likely aim to protect price perception across core and fresh food products to minimise the risk of downtrading.

This is a “challenge” for Morrisons because of its farm-to-fork model, we were told. While supermarkets such as Tesco use suppliers that give them a “buffer” to increasing costs, Morrisons’ model does not. Although over a period of 2-3 years this “makes very little difference”, the specialist said short term this could “squeeze” Morrisons’ profits. 

Another challenge for Morrisons is its pricing, which the specialist believes has “weakened” in the eyes of consumers since its takeover last year. They said the supermarket’s performance is currently behind Tesco and Sainsbury’s, but added that its 500 price cuts campaign was a “well-timed” reminder for customers. 

Over the coming year, the specialist said the eyes of the big four UK supermarkets would be on the likes of Aldi and Lidl to see if the supermarkets raise prices. If they do, the specialist expects others to follow. And for the next 2-3 years, the specialist envisages a “really challenging” time for customers, supermarkets, suppliers and primary producers. However, they said that supermarkets can be “winners” in these conditions if they find a method to drive competitive pricing and a marketing message that increases customer footfall.

To access all the human insights in Third Bridge Forum’s Morrisons – 2022 growth outlook, pricing position & market share opportunities Interview, click here to view the full transcript.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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