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Morrisons may be regaining ground, analysts say

The grocer has been late in moving to online but the partnership with Amazon may reap benefits

WM Morrison Supermarkets PLC - Morrisons may be regaining ground, analysts say

WM Morrison Supermarkets PLC (LON:MRW) may be regaining ground after emerging as the laggard in terms of market share and is looking over its shoulder at Aldi.

It has, however, made a decent fist of things in 2021 with the latest industry data showing sales in the 12 weeks to April 19 up 7.2% year-on-year, meaning its market share rose 0.1 percentage points to 10.0%, a couple of points ahead of Aldi.

READ: Morrisons eyes better profits as COVID-19 costs dwindle, cafes reopen

However, the FTSE 250 group held market share of 10.6% five years ago and 12.3% a decade ago.

Morrisons was a late mover into the online sector but has taken a couple of shortcuts with its hook-ups with Ocado and Amazon, which analysts say need to start pulling their weight so they can “make it just too easy and too cheap to even think about nipping to Aldi”.

“Tesco’s Aldi Price Match took a chunk out of the challenger’s market share last year - a sign that price is still a huge pulling factor for UK shoppers. If Morrisons doesn’t do something similar it’s in danger of slowly being overtaken over the next few years, even if management sees ‘meaningful growth’ ahead,” said Dan Lane at Freetrade.

“Shoppers might have been forced to choose what was closest or most convenient during the pandemic. If low prices outweigh that as the economy opens back up, Morrisons market share could slip away.”

The supermarket chain said it has made a good start to the current financial year, with “robust” like-for-like (LFL) sales against tough year-on-year comparatives.

In the 14 weeks to 9 May, group LFL rose 4.7% or 2.7% excluding fuel. Online sales, comprising its own website and its offering on Amazon, rocketed 113% and wholesale LFL climbed 21%, after starting to supply 230 extra McColl's convenience stores.

Trading benefited from huge increases in food-on-the-go as restrictions eased, with better fuel sales also underpinning full-year profit expectations.

The grocer remains in good shape financially, Richard Hunter at interactive investor noted, as its guidance on net debt is unchanged, and its cash generative ability to reduce this number is also underpinned by a largely freehold store portfolio.

Profits are also expected to be helped by fewer COVID-19 costs, which came in at £27mln in the quarter, mostly due to staff absence and more marshals during lockdown.

“The core retail operation has slowed progress significantly though. That’s largely because we’re now lapping earlier stages of the pandemic, which saw stockpiling boost performance,” said Sophie Lund-Yates at Hargreaves Lansdown.

“Even with stellar Mother’s Day and Easter trading, retail sales are moving at a much slower pace. While this is to be expected to an extent, there are some things to watch out for. The supermarket’s known for cutting its prices to keep tills ringing, and in the last quarter it decided not to pass on higher commodity and freight costs to customers. Staying competitive does have merit, but it keeps a tight lid on profits.”

Shares rose 2% to 185.82p on Tuesday at lunchtime.

Quick facts: Wm Morrison Supermarkets PLC


Price: 292.3253 GBX

Market Cap: £7.07 billion

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