MORRISONS’ forecast-beating 11.5 per cent profit growth may not have warmed the cockles of investors – shares slid almost five percent yesterday – but what the group’s annual report shows is that supermarkets are having to think clever to grow.
After a fairly difficult period, chief executive David Potts has successfully got the business back on track with his focus on fixing, building and growing. On the shop floor that means more local products, and behind the scenes a supply chain less reliant on imports – a savvy move given the ongoing weakness of the pound.
But while sourcing pies and potatoes from local suppliers is admirable, what Morrisons is doing outside its retail business is more interesting.
While Sainsbury’s acquisition of Argos defined its diversification programme, Tesco and Morrisons have looked to the wholesale sector and the tens of thousands of small shops they service.
Tesco is now the largest food group in the UK after its acquisition of Booker, and while Morrisons’ move into wholesale has not been on nearly the same scale, its deal to distribute to McColl’s opens up another revenue stream – one which when other contracts are included will add £1bn to the group’s revenue.
That revenue grew 5.8% to £17.3bn so the contribution of its wholesale arm, which Mr Potts declared was “open for business”, is not insignificant.
And as an added bonus, it has revived the Safeway brand – one much missed by Scots since it disappeared from the high street in 2005.
As Laith Khalaf, senior analyst at Hargreaves Lansdown put it, “The retail sector is polarising into winners and losers, as a result of tough trading conditions and changing consumer behaviour”.
The creation of a viable wholesale business which uses the larger group’s buying power and logistical might is helping position Morrisons very much on the side of the winners.
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