Wm Morrison, which recently lost its place as Britain’s fourth biggest supermarket chain, reported a near halving of profits in the third quarter as “unprecedented inflationary pressures” hit its food manufacturing operations.
The grocer, recently overtaken by Aldi as the UK’s number four by market share, said underlying earnings fell to £177mn in the 13 weeks to July 31, from £356mn in the same period last year.
“It’s clear that the cost of living crisis is starting to change customer shopping patterns in many ways,” said chief executive David Potts.
“The speed, scale and severity of cost and energy price increases, exacerbated by the terrible war in Ukraine, had significant impacts through the quarter, but the market is still growing and the energy price guarantee will ease pressure on consumers,” he added, referring to measures announced by the government on Friday.
Morrisons noted that “as a foodmaker, we feel the effects of inflation earlier than other retailers”. Morrisons has always been more vertically integrated than other major supermarkets, with around half of its fresh food produced in-house.
The company said the quarter finished strongly and that this momentum should continue in the final three months of the year.
The numbers do not include the costs of Covid-19 remediation measures or supply chain disruption because these are regarded as temporary.
They also do not include any impact from the acquisition of convenience store chain McColl’s in May, as the group is required to hold McColl’s separate pending regulatory approval for the transaction.
Morrisons said some of the decline was due to “temporary and transitional factors” such as alterations to the group’s loyalty scheme.
The change in its financial year-end from January to October following its takeover by private equity group Clayton, Dubilier and Rice last year meant that income from supplier advertising and promotions now falls in the fourth quarter not the third. Such revenue is not large but is very high margin.
Same-store sales fell 3.1 per cent excluding fuel but were 4.3 per cent higher when petrol and diesel sales were included, highlighting the impact of elevated fuel costs due to the war in Ukraine. The UK’s competition regulator has said there is little evidence that supermarkets profited unduly from fuel price volatility.
Morrisons has lost grocery market share this year, especially to discounters Aldi and Lidl, which have encroached heavily on its northern heartlands and also target value-conscious shoppers.
According to the latest Kantar data, Morrisons’ share of the UK market was 9.1 per cent in the 12 weeks to September 4, down from 9.8 per cent at the time of the CD&R takeover.
It has responded by launching a fresh round of price cuts and restarting promotions on fuel. “We are doing everything we can to keep prices down for customers,” said Potts, the only one of the trio of executives who ran Morrisons when it was a quoted company to remain at the company.
Former chief financial officer Michael Gleeson is on gardening leave before joining rival Asda, while the company said on Wednesday that chief operating officer Trevor Strain would also be leaving the group.
