10 burning questions for Morrisons: CEO Dalton Philips responds

Last week we consulted a long list of experts including Morrisons insiders, bankers, advertising gurus and retail analysts in both the UK and US for their opinions on the 10 burning questions for Morrisons CEO Dalton Philips ahead of its annual results.

This week after Morrisons posted a 2.1% fall in like-for-like sales for the year to 3 February and a 7.2% fall in pre-tax profits, Philips gave us his answers.

Have you lost touch with your core customers?

No. We make a point of staying close to customers. The Morrisons management board start every Monday morning in a store, talking to customers and looking at whether we’re providing what they want.  When a customer writes to me, I personally respond. However, I agree that we lost some focus on giving them the promotions that they need and want. We’re now making real progress in correcting this and we’ve seen a real improvement in sentiment toward Morrisons.

Is the Store of the Future programme paying off?

An emphatic yes. When I arrived at Morrisons I thought that British supermarkets were a bit too functional. Morrisons was different because of the traditional skills – butchery, bakery, fishmongery - in its stores. They just weren’t as evident to customers as they should be. Our fresh format stores are exciting and that’s why customers like them. Sales are up 4 to 6 per cent against similar stores that haven’t had the makeover. The fact that we won your Grocer of the Year award was mainly down to our Store of the Future programme.

What is Morrisons doing about the discounters?

Making sure that our base pricing makes us competitive. We check how our prices compare against the discounters and in many cases we are as cheap or even cheaper.

“The Morrisons management board start every Monday morning in a store, talking to customers and looking at whether we’re providing what they want”

We’ve also developed an entry price point brand M Savers where we have more than 500 products, allowing our customers to do a full shop at bargain prices. It’s attractive (it used to be a garish yellow) and it is the fastest growing value brand in the UK.  But remember we offer our customers more than competitive prices.  We offer a different shopping experience.  Our skilled craft colleagues offer customers choice and value on fresh which no discounter can match.

How strong is the Morrisons management team?

We have a fantastic management team. It’s a combination of home grown talent, directors with fantastic experience at other UK retailers and now some expertise from overseas. Our most recent appointment trading director Casper Meijer has a track record at Ahold, one of the top 50 food retailers in the world according to The Grocer, of delivering great fresh food at great prices.

How useful was FreshDirect as an acquisition?

We didn’t acquire FreshDirect we bought a 10% stake in the business and yes we are confident that will be a great investment. It allowed us put own team of manufacturing, logistics, customer experience and project management experts to see how the best online grocer in the world works its magic. They have been given full access to FreshDirect’s operations and have been able to analyse its processes and systems. We now know a lot more about the economics of picking and delivery of food and delivering excellent customer service. This experience is going to be invaluable as we develop our own online grocery service for launch in 2014.

Does the Kiddicare strategy make sense?

When we bought Kiddicare in 2011 we bought a great business, great technology and experts that could help us develop an online business. Both Kiddicare and FreshDirect, together with M Locals, are stepping stones to an integrated multi channel strategy.

Whether it’s food or general merchandise customers will be able to buy what they want, where they want, when they want.  And for Kiddicare specifically, we’re making it truly multi-channel by opening ten stores that will be destinations for new parents. Why do this when sales are migrating online? Because customers want to be able test out their pram before they buy it on the Kiddicare website. It’s similar to the Apple store model – people get to try before they buy.

We have used the technology and the expertise at Kiddicare to launch our second website Morrisons Cellar to rave reviews. Scott Weavers-Wright from Kiddicare is now helping us develop the technology to start an online grocery business that will be genuinely different.

Is Ocado the answer?

We are talking to Ocado about a possible licensing agreement but we are not dependent upon a plan that involves Ocado. Whatever we do, our online food business will be distinctively Morrisons. That means great craft skills, great fresh food sourced from own food manufacturing business and great value.

Is there a clear plan on convenience?

Yes.  There’s a clear plan and a talented team under convenience managing director Gordon Mowat. The convenience market is a big opportunity and our M local format will give the customer something that’s a bit different to other offerings. For starters, we have got more space given over to fresh food. Customers will enter our stores knowing that they can pick up that great value ready meal or make a meal from scratch with fresh ingredients. We also have a clear plan to expand aggressively. We have acquired 62 stores in the last month and we will open 100 stores this year. That’s as fast as anybody has expanded in this channel.

Is Morrisons’ vertical integration an advantage?

I believed it before February but the horsemeat scandal has shown even more clearly why vertical integration is an asset.

“The horsemeat scandal has shown even more clearly why vertical integration is an asset”

There has been a seismic shift in customer interest in the provenance of their food and we have more confidence about our fresh meat than any other retailer. Why? Because we walk livestock into our own abattoirs, we control the animal welfare, slaughter livestock ourselves and process the meat in our own factories. We control the quality and we control the cost. We can cut costs because we don’t need legions of sales and marketing people to sell ourselves food. Vertical integration is a win-win for our customers and shareholders.

Are Ant & Dec worth the investment?

Yes, we were amused by your fuzzy maths at how much we paid Ant & Dec. Of course, we’ll have to keep you guessing but they are great value for money. Their genius is showing off the extraordinary talent of ordinary people. We believe we have really talented people at Morrisons, and we know that the Ant & Dec campaign is really resonating with customers.