ALEX BRUMMER: Exit strategy for local grocer as troubles at Morrisons deepen

• e-mail

The enthusiasm which greeted Bradford-based Wm Morrison when it moved its homespun offer South and absorbed Safeway a decade ago has turned to dust.

A brief interlude of recovery under the stewardship of Marc Bolland, now at Marks & Spencer, looks a lifetime away. The drawn-out saga of the effort to develop its own online offering ended when it threw in the towel and handed the keys and a chunk of money to Ocado.

The late arrival on the convenience store scene has been an unmitigated disaster, with 140 shops disposed of for a paltry £25million, leading to a loss of £30million and lease problems that could wipe out a further £20million.

Under pressure: Wm Morrison is in its fourth year of declining same-store sales

Ultimately the responsibility for this debacle rests with former chief executive Dalton Philips and the board, egged on by a posse of analysts and shareholders.

Even allowing for the kitchen-sinking by new chief executive David Potts, an émigré from Tesco, the picture is far from pretty. The company is in its fourth year of declining same-store sales, turnover for the past six months is down by 5 per cent and profits have slumped 47 per cent to £126million. Some 11 supermarkets with 900 jobs are in the firing line for closure.

It is a little bit too easy to blame all of this on German discounters Lidl and Aldi.

The Potts approach sensibly appears to be to focus on what Morrison has been good at in the past. It is talking loudly about ‘local solutions’, so no large jars of pickled onions in the South; instead, more sparkling white wine from Sussex in London.

In its native North, the firm’s point of advantage always has been its control of part of the supply chain from the farm to the abattoir and the shop.

This was the formula that worked so well for Sir Ken Morrison and his family. The group is also looking at expanding services such as dry cleaning and pharmacies – all useful add-ons.

Morrison, unlike Tesco last year, is at least in the black.

But with a market value of around £4billion, now it is looking like a fascinating takeover candidate.

Competition rules would prevent any of the other big three supermarkets – Tesco, Sainsbury or Asda – stepping in.

Upstarts Lidl or Aldi could see a bid as a short cut to scale.

The firm could take the fancy of retailers now in private equity – that includes Justin King and Sir Terry Leahy – or wealthy collectors of UK retail assets, such as the Weston family.

Morrison may be a basket case but its unusual vertical structure makes it a little different.

Living wage

If there was ever a good moment to address the issue of low pay in Britain it is now, when the economy is close to full employment and vacancies in parts of the country outstrip the jobless.

Paying higher wages will have an impact on costs but it will also contribute to a more settled, satisfied and loyal workforce.

Lord Simon Wolfson, who leads Britain’s best-run clothing retailer Next, calculates the increased wage bill at £27million and says that this will feed through to a 6 per cent rise in clothing prices by 2020. Of course it doesn’t have to.

As a fashion retailer, Next enjoys generous operating margins that improved from 18.3 per cent to 19 per cent in the last six-month period. So instead of passing the increase on to consumers he could easily choose to absorb the cost.

Contrast Wolfson’s comments to those of David Potts at Morrison. He says paying frontline staff better is a ‘good thing’.

It could even lead to higher productivity. Even though margins are thinner and competition greater the company accepts it is a cost that will have to be taken on the chin. At Dixons Carphone, which also works on narrow margins, the living wage already is in the budget.

As much as one admires Wolfson and his fixation on costs, margins, profits and shareholders he might have been more generous in his thinking. During the Great Recession, UK workers made important wage sacrifices to stay in work. They deserve a share of the proceeds of recovery.

Open sesame

Ever since the Bank of England gained its independence it resisted the idea of the minutes of the Monetary Policy Committee’s deliberations being made public on the day of the vote.

It was argued that instant publication could be divisive and restrain some members from saying what they think.

The result was a two-week hiatus creating the opportunity for mischievous speculation.

Now that the Bank instantly is releasing the minutes, the roof has not fallen in, the markets haven’t crashed and the sole vote for a rise in rates from Ian McCafferty comes as little surprise. The age of transparency has to be a good thing.