However, its acquisition of Safeway, completed in March this year, has given the ambitious northern supermarket chain substantial food for thought, and some digestion problems. The results showed that the performance of the acquired chain has continued to decline, with like-for-like sales down 7.9% at 拢2.98bn and an operating loss of 拢39m.
Unconverted Safeway stores are still haemorrhaging sales revenues at 10% a year, and Morrisons' 13,000 price cuts do not appear to have generated enough extra custom to justify the reduced margins.
The Bradford-based grocer has been installing its own-label range in acquired Safeway stores and rebadging some of Safeway's own-label lines as Morrisons. Joint managing director Bob Stoot has instigated a national TV campaign this autumn to mark the completion of this 'harmonisation' programme, which he said will enable Morrisons to shout about its offer and prices throughout the UK.
But analysts are concerned that the converging range is not appealing to Safeway shoppers, despite the lower prices. While Morrisons has a strong culture and loyal customers in parts of northern England, there are concerns about its appeal and strategy in other regions. Christmas trading and full-year Morrisons figures should make revealing reading.
We asked Gavin Rothwell, senior retail analyst at Verdict Research, for a wider sector perspective, and Mark Dickens, strategy director of the agency Astound, which has worked with Tesco for the past eight years, for a branding insight.
DIAGNOSIS 1 - Gavin Rothwell, Senior retail analyst, Verdict Research
Morrisons is a committed, single-format superstore retailer. Given the size of the task it has in getting the Safeway store estate up to scratch, it is right to get rid of the distraction of the Safeway Compact stores. And, in another piece of shrewd business, it has avoided strengthening key rivals with the sale.
There are two main problems: the Safeway tail that is dragging down group sales and profits, and the performance of converted stores.
With little investment in the stores, upping the rate of conversions makes sense. The performance of converted stores in some regions - notably north of the border - is below expectation. Given Safeway's traditional strength in Scotland, it was always going to be difficult. However, this highlights a UK-wide problem: Morrisons is not doing enough to convert Safeway shoppers as it converts stores. The new product range is clearly cheaper, but it features too few concessions to the old Safeway offer.
This will become more of an issue in the South-East, as it converts stores that serve more affluent demographics.
REMEDY
- Adapt the range to accommodate the more upmarket requirements of traditional Safeway shoppers.
- Ramp up ad campaigns in areas where Morrisons lacks heritage.
- Better emphasise broader attributes of the offer in the South, such as range, quality, service and price.
- Bolster the PR operation. Morrisons now competes in the grocery premier league, but Tesco and Asda still get almost all the PR coups.
DIAGNOSIS 2 - Mark Dickens, Strategy director, Astound
The Morrisons brand has always been 'reet' Yorkshire. Trouble is, although that has a heart-warming resonance of traditional, no-nonsense, good-value services, it just doesn't cut the Yorkshire pudding in the Home Counties. A rough and ready brand, Morrisons is perceived as trusted, honest and offering down-to-earth value with a Geoff Boycott 'I say what I like and I like what I bloody well say' attitude.
Morrisons refreshingly doesn't get lost in all the navel-gazing about its brand at the expense of getting the important things right. It's a good trader and a lean operating outfit, controlling costs and making its supply chain efficient, although evidently feeling the growing pains of integration from the Safeway 'hand-me-downs'.
Morrisons does not have a 'big brand' persona, but that's one reason why customers like it. It will take time to carefully adjust and communicate its values without seeming too parochial.
The big challenge will be to listen and respond to its diversified customer base and evolve to be their champion.
REMEDY
- Focus on customers more than the brand. Give them what they want to engender their loyalty.
- Keep the costs down and spend it wisely. Don't do 'owt for nowt'.
- Innovate but don't forget what you're good at. Try to keep your intimacy while achieving the new scale of the business.
- Be more nationally inclusive. Honest, good value has a universal appeal.
- Talk to customers, not at them.