13 Mar 2014

Morrisons to take on Aldi and Lidl in discount stores war

The chief executive of Morrisons, Dalton Philips, announces plan to slash price and take on discount rivals to tackle the company’s £176m annual pre-tax loss.


Morrisons’ earnings were hit by with declining sales and exceptional costs of £903m from write-downs on the value of its stores and the planned sale of its children’s wear retailer Kiddicare.

They were also impacted by a drop in like-for-like sales for the year to 2 February, which were down 2.8 per cent.

The rules have changed and we must change too .. we must compete on price Dalton Philips, Morrisons chief executive

Chief executive Dalton Philips said Morrisons said shoppers are now choosing to save by turning to discount stores like Aldi and Lidl, despite the improvements in the economy.

Shares fall

Shares plunged by as much as 10 per cent after the group issued a profits warning for the current financial year.

However, Mr Philips unveiled plans to invest £1bn over three years to improve the company’s value and “defend and strengthen our competitive position”.

He said: “The biggest challenge that we face is that there has been a fundamental change in how consumers view discounters.

“They are no longer going to them out of necessity. The perception has changed and there is a new price norm.”

Morrisons will also sell off £1bn of its £9bn property portfolio by 2017, including some stores.

He added: “The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail.”

He warned that all the major supermarkets were losing out to the discounters but that they had a larger “overlap” than any of its rivals.

“The rules have changed and we must change too. It is absolutely critical that we begin winning again in our core supermarkets. To do that we must compete on price,” he said.

Discount wars

However, he insisted Morrisons would not turn into a discounter itself – saying prices would not have to match theirs, but be just low enough that their fresh food and quality offers would be worthwhile.

Morrisons said it would dispose of its stake in New York-based online grocer Fresh Direct as well, which it also bought in 2011 as it sought to develop its expertise in preparation for the launch of its own online venture.

Shares tumbled on today’s results, but some analysts are optimistic about the stock after the strategy overhaul.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said “not all is doom and gloom” with the roll-out of online and convenience stores under way and a 10 per cent hike in the company’s dividend.