Analysis: Online and wholesale fuel Morrisons comeback

In 2015, Morrisons found itself staring into the abyss. Late to the online party and facing intense competition from its ‘Big Four’ rivals and buoyant discounters, it reported its worst performance for eight years. Full-year pre-tax loss widened to £792 million, from £176 million a year before, as sales plummeted and millions of pounds were thrown at price cuts. 

Fast forward to 2018 and the resurgent retailer has today posted strong full-year numbers and expressed confidence about future performance. There was much talk about fixing and rebuilding the business, with an emphasis on meaningful and sustainable sales growth.

“We are at the beginning of simplifying and speeding up the company, including in-store administration and distribution,” said chief executive David Potts, flagging up a new automated ordering system which is fully operational in all stores across all food categories. Along with Blue Yonder, it picked up the IGD 2017 Award for Supply Chain Innovation for the project. 

There is more work to be done, however. “The shopping experience can always be improved and there will always be more shoppers who can be reached,” he continued. "Customers like the fact that we are a British company, buying British, with a British supply chain”.

“Morrisons has gone from catch-up king to industry darling. Today’s results show that shoppers are responding well to recent store investments such as lower prices and improved ranges and availability,” comments Natalie Berg, retail analyst and founder, NBK Retail.

“The dangerous cocktail of a weak pound and reliance on imports means it’s more expensive for supermarkets to get products on shelves. Morrisons, however, is uniquely positioned to ride the inflationary wave given their predominantly British supply chain. That’s helped to keep prices low without significantly impacting the bottomline.”

“Morrisons has gone from catch-up king to industry darling"Natalie Berg, retail analyst and founder, NBK Retail

Keeping an ear to the ground

Online and wholesale arrangements have been strong contributors to Morrisons’ turnaround. Wholesale will grow further on the back of partnerships with Amazon, Rontec, Sandpiper, Safeway and McColl’s. The latter last year inked a new supply deal with Morrisons in a move that resurrected the Safeway brand. This will be extended to 1,650 McColl’s convenience stores, with Morrisons adding 25 stores a week since January.

As for online, the Amazon tie-up, including the same-day Amazon Prime Now and next-day Amazon Pantry offerings, is being extended across the country and providing a low cost, lucrative revenue stream. In-store, Amazon lockers are also now in more than 400 stores.

Elsewhere, Ocado’s new distribution centre in Erith, Kent, is due to open this year, and following investment, Morrisons has a vested interest. “We look forward to this coming online, so more people in the south east can have access to our eCommerce services,” said Potts.

There are also 160 new Doddle pick-up points in-store and Morrisons is set to take its clothing brand Nutmeg online in September. It has teamed with cloud commerce platform Kooomo on the launch, with the company undertaking management of Nutmeg’s entire digital operations. Customers will be able to make online and mobile purchases, use click & collect and receive More card loyalty rewards. 

Danielle Pinnington, managing director, Shoppercentric, observes: “Morrisons has been working hard to understand what today’s shoppers need from their stores, and putting those learnings into practice. Keeping an ear to the ground is so important as shopping habits, household spending pressures and the competitive context change so quickly. Picking up those changes and reacting quickly is hugely important for today’s grocery retailers.”

This is no time for complacency, argues NBK Retail’s Berg. “Aside from the obvious threat posed by a newly combined Tesco-Booker, Morrisons must also ensure to remain price competitive in the face of inflation and discount competition,” she states.

“There are also longer-term concerns over its deal with Amazon. The tie-up is currently mutually beneficial. Morrisons piggybacks off Amazon’s supply chain while Amazon learns how to sell groceries online. But at some point, Amazon will want to acquire a UK grocer and it won’t be Morrisons.”