Analysing grocery retailers, it’s important to keep close track of Morrisons versus Asda. Both are much loved by shoppers, both are burdened with huge debt, both are under attack from discounters, and both have gone the back-to-basics route under CEOs Rami Baitiéh and Allan Leighton.
Ultimately, both face the same test: can they create a proposition that is credibly good value and operationally excellent? The loser will surely be the next big casualty in the UK grocery retail pressure cooker.
It’s clear to me that Morrisons has now started to turn the corner, getting back to the brand strengths: good, honest, fresh food value. Meanwhile, although Asda is making shopper-popular decisions such as re-establishing Asda Price, it is impossible to see how this could ever pay back on the P&L.
What Morrisons is getting right
Yes, Morrisons’ return to basics has driven step changes in service, supply chain and availability. Sure, it also has a regular pattern of price cuts, but importantly it is not focused on savings and price alone. It has a renewed commitment to differentiate with the factors that are most distinctive about Morrisons: integrated production, Market Street, cafés, etc. It has recently hired a new Market Street MD and is reopening modernised counters. Even Fish Friday and Steak Saturday have been brought back.
Returning to its 10-year-old tactics is more than just sentiment. As Tesco has shown for decades now, build good data and then let the data decide. Morrisons’ More Card has grown to eight million active members, alongside the digital app. This has been achieved even while making promotions available beyond More Card (unlike the loyalty bribery of other retailers). It is also upweighting physical coupons through mailings and at the till, because customers, who it surveys relentlessly, just love them.
Regarding promotions: there were too many, they were too complex and they asked too much of retirees and older shoppers on basket size. These have been slashed and simplified. Even the paper coupons are now landing well, with strong redemption and repeat, because they’re a simple, personalised, tangible saving, such as 10% off reachable spends.
Its online proposition is catching up and weakness in convenience is being fixed at pace, largely by scaling Morrisons Daily through a partner/franchise-led model. Morrisons is also the only retailer to extend loyalty cards to franchise operators, so the franchisee proposition is very strong.
Baitiéh, who succeeded in Carrefour with similar strategies, is a unique, hands-on retailer and, after initial style conflicts like Darren Blackhurst, I now see a sense of energy across the new leadership team and real purpose around the strategy. Without a doubt, even dissenters must concede this is a focused job for the private equity owners: improving cash generation to improve sale potential.
So, where I see a dead end for Asda, there is light at the end of the tunnel for Morrisons, and the share gains from Asda are there. If Asda were to go under, Morrisons will be relying on the CMA to prevent Sainsbury’s and Tesco from snapping up Asda stores in Morrisons’ strong northern heartland, because its format is not strong enough to hold up against them, or the discounters, just yet.
David Sables is CEO of Sentinel Management Consultants
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