C-store expansion boosts Morrisons as inflation hits profits

Morrisons expects its rapidly growing convenience operation to be profitable by the end of the year, as smaller stores emerged as a key player amid a continued struggle to stay competitive against its supermarket rivals.

CEO David Potts said c-stores were a “strong area of focus and growth” with Morrisons now boasting almost 650 Morrisons Daily stores, roughly 400 of which are former McColl’s.

By year end, it expects to have almost 1,000 Morrisons Daily stores trading and what Potts called a “significantly enhanced position” in the convenience sector.

Analysts said the growth in convenience was much needed, with the supermarket yesterday announcing second quarter sales, covering the 13 weeks until 30 April, were up by 1%, excluding fuel.

However, total group revenue fell 0.9% to £4.5bn due to lower fuel sales.

Morrisons has also seen profits hit by inflation and an ongoing series of price-cutting campaigns, as it seeks to stop an exodus of shoppers to the discounters.

Earlier this week the retailer announced its sixth round of price cuts in 2023, with almost 50 high-volume products reduced by an average of more than 25%.

It was reflected in profits, with underlying EBITDA for the first half of the year down by 10.7% to £394m, due to what it called “sustained investment in price and continuing significant inflationary headwinds”.

CEO Potts also hailed the recent relaunch of the supermarket’s More Loyalty card, along with a heavyweight marketing campaign to promote its price competitiveness, as a significant turning point.

He also said there were “early signs” of inflation easing, despite the Bank of England having again been forced to raise intertest rates.

“Although we are still in the foothills of our new journey, we are making good progress in our plans to develop a broader, stronger Morrisons built on traditional values with modern methods,” said Potts.

“The momentum we reported in the first quarter has continued with further progress in our like-for-like sales and in our price competitiveness. We also saw significant improvements in the key measures of customer satisfaction, availability and value for money.

“Inflation remains disappointingly and stubbornly high, which means customers are still very much on a budget.

“Through the quarter we continued with our programme of large-scale price-cutting campaigns, complemented by quick, tactical price cuts in areas where we can see the early signs of inflation easing.”

Eleanor Simpson-Gould, senior retail analyst at GlobalData, said: “With limited options to boost trading through its core supermarkets, sales growth through a growing convenience estate will be vital to lifting its performance.

“Helped by recent conversions of McColl’s stores, Morrisons now has opened almost 650 Morrisons Daily stores and expects to have almost 1,000 stores trading by year end.

“Such investment will make it a major player in the channel, but maximising the performance of these stores requires a different skillset to its core business, Morrisons will need to be agile and highly customer focused to compete effectively.”