Probably useful to read the slides that were used at the announcement alongside this blog post.
As expected, the half year results were particularly positive with the City certainly appreciating the work from Dalton and the team as shares touched £3.00 after a low of £2.70 in August.
The market backdrop (as predicted) was grim with customers spending less on credit cards, more on debit cards and research indicating that Morrisons shoppers were spending longer in stores, studying prices and offers with social media in particular given a nod for their role in sharing great offers. Morrisons have always retained a strong promotional offer so this is their cup final so to speak.
It seems that Morrisons are reacting to the consumer struggles by beating a few of their rivals to market with Christmas, historically Morrisons are the last to get their Christmas offer into stores whereas this year, they were the first. Not only the first but they had a full offer from early September which is unheard of.
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| Christmas biscuits – first to market. |
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| Christmas Chocolate offer – first to market. |
The reason for getting first to market is unlike other years, customers will spread the cost of Christmas and start buying things as early as September when they have cash, rather than waiting until December and sticking the entire festive purchases on a credit card for example. The lack of credit due to the jittery economy means people are having to resort to spreading out purchases.
Another area where events are popular is the various toy events, Sainsbury’s in particular have carved out a niche for themselves with their October ‘toy event’ where toys are half priced and it sees parents arrive at the store before converging on the aisle and fighting over stock….Literally! Morrisons again have been particularly astute and launched there own event in September, clearly hoping to capture that early spend as unlike previous years, parents won’t buy and buy for the kids, it will be set budgets.
The sale looked popular as some of the space is now taken up by Christmas cards so the early sale has clearly captured the imagination of the customers and will drive sales and margin to the bottom line.
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| Toy event in Morrisons – early to market. |
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| Great prices on items like Playmobil for Christmas presents. |
As expected, there were questions over online, convenience, scale, self help and whilst some of the analysts were positive about prospects, some continue to make very bizarre statements with one analyst indicating that Morrisons lack of non food would cause them trouble whereas another says their lack of exposure to non food means they are well protected from the downturn..
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| Futher expansion of M Local is planned |
What analysts seem to miss is that not everything has been shouted about from the rooftops, readers of this erstwhile blog will know that the non food range has been refreshed and rolled out earlier this year. Why the continuing chat about the lack of non food?
Morrisons never have had a huge assortment of non food and if anything are extending their space in this area. Only slightly but nevertheless it’s going to have a positive effect on the margin, especially with the sourcing agreement in Hong Kong yet to pay dividends. You only have to look above at the toy event that has been launched for complimentary non food that works in store and shows that Morrisons have a presence.
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| Expanded refreshed range of non food in stores. |
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| Focus on items for cooking, homeware, bedding. |
The offer is more relevant and in some cases, space is liberated (Swinton for example) and non food ranges expanded which drive margin without over exposing the business to the dynamics of the wider economy, where shoppers don’t have much money, certainly not enough to spend on the vast ranges of non food that some retailers have.
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| Kiddicare.com ordering points now in 8 stores with a future roll out. |
There is of course the Kiddicare acquisition which has yet to bear real fruit in terms of a .com offer, however Scott Weavers-Wright has been appointed head of online non food and the launch looks likely to be early next year with a rumour reaching me that Wine would feature. That would make sense considering the strong Morrisons offer within Wine. There are some baby lines that are starting to appear in store, the recent baby event has seen extra lines in store and a keener price structure than before.
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| Kiddicare branding also on advertising in store. |
In terms of having no money, Dalton said that some shoppers found themselves having non money left at the end of the month. It’s vital that Morrisons retain the value credentials, supported by excellent deals, availability and store standards in order to continue their appeal to customers. Something they’ve always done well.
The o2 – own label to own brand programme looks to be timed well with news that shoppers are continuing to compare ingredients, prices and switch their shopping to own label products. With the relaunch of ready meals due soon and 8000 of the 12000 wider product range already reviewed, it looks like Morrisons are really going to push their own brand sales post relaunch.
In terms of the update, Dalton focused on specific areas where news was plentiful, other areas such as ‘completing national to nationwide’ and ‘enhancing service culture’ continue to bowl along nicely in the background whereas the market would be more interested in the Liberate and Fresh lab developments along with expansion news regarding the holy grail of both online and convenience.
All initiatives are on track in terms of driving top line, increased efficiency and capturing growth with moving ahead further on fresh being a focal point of the growth strategy, especially since there is craft skills in store and the continued good performance in vertical integration.
The blog has continued to chart progress at Kirkstall and its interesting to hear the updated figures for Kirkstall with Produce performing 4% better at 13%, Fish up 13% and Bakery up 15% since the refit.
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| The message of fresh is never far away in Kirkstall |
Fish is of interest as they like Meat are producing their own lines in store such as salmon en croute that are proving popular, certainly the new ready meal counter will feature these lines with the option to customise the meal offer with extra vegetables, sauces and accompaniments. An exciting development and with the push to drive own label sales on track, it will be interesting to see how quickly Morrisons hit their target of 55%.
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| More scratch lines in Kirkstall has seen sales increase by 15% |
Bakery is another point of interest as the recent blog charted a strong scratch range in Morrisons if a little cluttered, it seems that Kirkstall are producing more scratch lines with late night visits revealing a focus on little batches of baking rather than aiming for a carryover. New scratch lines being Oktoberfest boule, olive bread along with sourdough bread all attracting a slight price premium but increasing the craft skills in store.
Whilst not fresh, the Wine department has seen a particularly strong sales increase with a 24% rise since the department was switched to focus on merchandising by taste rather than region, it’s calmed down since the initial 200% uplift seen when the department was first merchandised.
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| Aromatic wines – shop by flavour and taste rather than country of origin. |
Whilst the switch makes things far easier for the customer who has little knowledge about wine, it’s likely to upset the ‘buff’ who knows his wine and will therefore have to look in a different area for his usual bottle.
The switch of merchandising means that customers are far more inclined to try something new so there’s an excellent opportunity for Morrisons to sell some of their own label wine which often performs particularly well at the industry awards.
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| Wine by taste rather than country has seen sales rise by 24% |
Whilst the merchandising has been shifted to taste rather than region, it’s likely to present problems for replenishment as the BWS team will likely know where most of the product goes but anyone helping on the aisle for example would struggle to find product for replenishment. In time it will bed down for replenishment time but it’s interesting that it’s another initiative that has sales / presentation in mind ahead of efficiency.
Kirkstall is the blueprint as a lab store and will continue to see initiatives trialled there before a nationwide roll out, further news was provided by Dalton on the rollout with St Albans to get a full offer with certain new aspects before Wrexham ( a new build) opens with a full fresh lab offer with indications that this will be a final draft before stores start to get the new fresh lab and refresh that has been seen at Swinton.
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| Items liberated in Swinton to sell through. |
Liberate is an area of interest and if hits to the blog are any gauge, it’s an area of interest for Morrisons’ rival supermarkets too. The precise logic isn’t known but it involves a shrink of range across categories such as household for example where there is a lot of duplication, certainly air fresheners have been pointed to before as a category that is needlessly expansive.
Each category was shrunk in size with some departments losing more lines than others, certainly frozen was compressed in Swinton as space is created for an expanded fresh food and Produce area along with the refreshed non food area plus the expanded party goods, toys and CD/DVD area.
There were some interesting results from Shrewsbury which indicated that despite the reduction in Grocery ranging, ambient sales had held up, whilst we had no figures for this it’s not expected to show a negative trend, however Dalton did concede that areas of the store were cut too harshly with cleaning products hardest hit whereas areas like biscuits could have been cut back more.
The main benefit of Liberate was that kids clothes were added to the range (1k sq ft) with extra space dedicated to ready meals and fruit juice which shows strong sales increases, certainly most stores have liberated their own space for ready meals ahead of the re launch with bays added for the new range.
Certainly Asda need to consider the impact of liberate within Morrisons as their ranging reduction of standard lines to make space for Hershey’s chocolate for example has seemingly annoyed customers and given the impression that ranges are shrinking.
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| Flower Shop at Swinton was previously a backup fridge. |
Liberate isn’t just about reducing ranges and rationalising, certainly Kirkstall benefited from counters being moved further back to allow more ‘floor space’, either by utilising dead space or reducing the expansive food preparation areas that counters have. Indeed when store warehouses are considered for ‘liberate’ then it represents an exciting opportunity for existing heartland stores that over trade and would benefit from an expansion.
As to be expected, news was keenly expected on the lab rollout and whilst a full scale roll out wasn’t announced, further stores are to benefit from the refresh; with Swinton (small sized store) and Kirkstall (large sized store) already showcasing the new Produce department, Shrewsbury have just installed their new look (as a mid sized store) after being the Liberate lab so each store is trialing the new look across different store sizes in different areas.
St Albans, a former Safeway store is also getting a full lab refresh and store extension with rumours of a merged garden and flower shop being the focal point of that trial. There are high hopes for St Albans as its the first store in the south to get the new ‘look’. Woking also receives a new look with signage but doesn’t have the new Produce department I hear.
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| Loblaw Ontario concept store – could we see similar at Wrexham? (c) cleantechnica |
Indirect procurement continues to be relatively simple to attack with several contracts being set up across the estate on a store basis, for example there being 300 individual window cleaning contracts across the estate rather than one provider cleaning each store. Whilst there logistical issues with window cleaners for example, the point stands and there will be further providers that could be rationalised to drive cost savings.
New build costs continue to come down with a ready supply of builders being available to start work, the new store at Newport is a test store for a reduction in build cost. The removal of the ceiling to allow the store to trade like some of the newer Tesco and Asda stores that don’t have a ceiling as such and trade with the roof on show.
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| Early prototype of Morrisons ordering pod – (c) Morrisons |
With the cost saving theme, the £100m target for 2013/14 continues to be in focus and York continues with their work on trialing productivity initiatives with a seemingly NHS inspired ordering pad on wheels currently in trial (albeit an early prototype!) Staff reaction to that is one of dismay with some talking of missed opportunities and asking how it will stand up to rigours of store based operations. An early prototype is just that and anything that doesn’t work will be refined, clearly electronic based ordering is the future both from availability, stock holding and efficiency points of view.
Further initiatives that have been rolled out were also discussed, counter times being compacted with staff starting later to add theatre as customers can see the fishmongers and butchers setting the counters up and employing their craft skills. This has been a smart adjustment with no investment in labour but increasing staff coverage across the day on counters along with driving sales with customers seeing the theatre.
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| Own label shelf ready packaging continues to be rolled out. |
Another point of interest is convenience and how the trial progresses with Ilkley and Wilmslow now open and trading. Ahead of the Widnes opening at Upton Rocks, Dalton revealed that this store would also be served by Cheadle which was mooted as the acid test for the hub and spoke model.
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| M Local model looks ripe for expansion. |
Two stores being served by one hub will be interesting but it’s vital for the success of the model, Dalton says he thinks 4/5 could be served by a hub store but I’d be interested to see the increased labour cost at hub stores which is traded off against the much higher margin vs. in store produced products of course.
Dalton also revealed again that no mass launch would happen but other stores would be trialed in differing locations, so I’d expect more in the south and more in Scotland for example considering the northern M62 corridor is relatively well served by M Local now. Certainly London was mentioned as a potential spot.
The o2o own label to own brand relaunch which was alleged for September now it appears that the mass roll out is October, certainly ready meals are relaunched in October and I understand it will be a bit of a revolutionary category changer with Morrisons utilising their manufacturing arm to produce these meals which of course means better margin.
Stores have been liberating their space ahead of the relaunch with stores getting 4-6 extra bays for the new ready meal relaunch, with bacon moving to another aisle in one store. In another pizzas have moved to the other end of the store with the space freed up for the new ready meal range. As Dalton points out, they’ve grown sales and profitability and that’s without the big initiatives like o2o landing.
Own label continues to be an interesting playing field with Sainsbury’s announcing their strapline overhaul today with a continued push on taste the difference and ‘by Sainsbury’s’. It’s going to get a lot more interesting for sure.