The revolution underway in food shopping has been underlined after Morrisons announced it was closing 11 big supermarkets, and Waitrose revealed falling sales for the first time in seven years.
The closure of the Morrisons stores puts 900 jobs at risk and was revealed as the food retailer reported that profits have almost halved in the last six months.
Morrisons is one of Britain’s big four supermarket chains alongside Tesco, Asda and Sainsbury’s. All are suffering from falling sales as shoppers turn away from supermarkets in favour of buying more of their groceries either from local convenience stores, online or at the discount chains such as Aldi and Lidl.
Waitrose, which is part of the John Lewis Partnership (JLP), had proved immune to the pressure since the onset of the financial crisis. However, its like-for-like sales, which exclude new store openings, are down on a year ago.
The upmarket grocer said like-for-like sales fell 1.3% in the six months to 1 August as it was forced to cut prices to compete with cheaper rivals. This meant that although the volume of products sold by Waitrose rose 1.8%, the value of its sales fell.
Waitrose lost its position as the country’s sixth-largest food retailer to Aldi earlier this year, and the expansion of Aldi and its fellow German discounter Lidl shows little sign of abating.
Lidl wants to open dozens of new stores in Waitrose’s upmarket London heartland. This includes shops in Chelsea, Notting Hill and Highgate, some of the capital’s wealthiest areas. Lidl plans to open 281 stores inside the M25 as part of plans to more than double in size to as many as 1,500 UK shops within the next decade.
At the same time, the big four are closing shops and scrapping plans to open new supermarkets. As well as shutting 11 stores, Morrisons intends to open only two more shops in Britain after scrapping two-thirds of the projects in its pipeline.
David Potts, the new chief executive of Morrisons, has also pulled the retailer out of high street convenience stores. On Wednesday, Morrisons announced it had sold 140 of its M Local stores for £25m, describing its small stores as a “distraction”.
Potts, who replaced the sacked Dalton Philips in March, warned it would take years to turn around Morrisons and that it must be done “shelf by shelf, store by store”.
“This is a long and important journey. It will take years, not months,” he said.
“There is much affection for the Morrisons brand, albeit that affection has been challenged. If we listen to our customers, they say our identity has become quite blurred over the years.”
Morrisons’ pretax profits fell from £239m to £126m in the six months to 2 August. The year-on-year drop was driven by a 2.7% decline in like-for-like sales.
Potts is aiming to get Morrisons back on track by tailoring the products in each supermarket to the demands of the local community, adding 5,000 staff to stores, making the company’s pricing and promotions simpler, and introducing new in-store services such as mobile phone repairs.
Morrisons also intends to grow its online grocery service, which is run by rival Ocado. Potts said the deal with Ocado was part of a “broader digital opportunity” for Morrisons, with the retailer looking to expand the service to Scotland and launch a click-and-collect option.
John Ibbotson, analyst at consultantcy Retail Vision, said: “Morrisons has consistently been behind the game. Late to online and with a high-cost operation, late to convenience and then selling out, late expansion in the rich south and now under threat from the discounters in its northern heartland.
“Morrisons says in its latest results that the turnaround will take time, but how much time has it got? This is a retailer that is ripe for takeover.”
The grocer could face further pressure on its profits from the introduction of the national living wage, which Potts said would cost “tens of millions” of pounds to implement. Morrisons has almost 119,000 UK staff.
Although Waitrose also suffered a fall in sales, its operating profits at least rose by 0.6% to £136m. This means its profits are now larger than Morrisons, despite the FTSE 100 company generating almost three times more in sales than Waitrose.
“We are pleased with the trajectory we are on,” Mark Price, the managing director of Waitrose sales, said. “We want to move on from where we are, but in this market that won’t be easy.”
However, JLP as a whole, including John Lewis, suffered a sharp fall in profits due to higher pension costs and redundancy payments to staff in distribution centres.
JLP reported a 26% fall in pretax profits before one-off items to £96m in the six months to 1 August.
More than 250 jobs are at risk at John Lewis as it closes three distribution centres in Milton Keynes, one in Stevenage, and one in Carlisle. Workers at the depots have been offered jobs elsewhere in JLP, but the group has booked potential redundancy costs as a £4m restructuring charge in its accounts.
The retailer also warned in its results that pension costs have ballooned by £60m as it battles to manage a £1.2bn pension deficit.
Sir Charlie Mayfield, JLP’s chairman, said it was a difficult market for John Lewis and Waitrose but called the performance solid.
JLP operates 44 John Lewis stores and 340 Waitrose branches, employing almost 90,000 people.