Covid-19 has spurred a renaissance of supermarket food
Morrisons believes the Covid-19 pandemic is accelerating its strategy to build a business that is much broader in its offering and more accessible to consumers.
“Our longer-term strategy builds a broader, stronger, more popular, more accessible new Morrisons, in a way that is capital lite and delivers profitable growth,” CEO David Potts said on a press call this morning (12 May). “I believe our response to Covid-19 is bringing that future closer.”
Morrisons’s results for the first quarter show like-for-like sales excluding fuel were up 5.7% in the first 14 weeks of the year. However, trading was “highly volatile” with a “considerable” increase due to customers stocking up, then a decline due to the initial impact of lockdown and weak Easter trading.
However, sales patterns are showing signs of returning to normal and were up 10.8% in the final two weeks of Q1 trading, with retail accounting for 9.6% of that.
Morrisons’ online offer is “expanding significantly and at pace”. It has more than doubled the number of weekly home delivery slots, which is above the 60% increase it had initially planned for, and is aiming to increase this number over the coming weeks. It is increasing click-and-collect pick-up to almost 280 stores by mid-June, up from a trial of just six stores in March.
Morrisons and Amazon’s same-day online grocery delivery service to Prime members is also expanding from 17 stores to 40 by the end of May, while a new partnership with Deliveroo enables customers to have groceries delivered by courier from 130 stores in as little as 30 minutes. It expects grocery home delivery to grow 25.5% this year.
“The expansion of online groceries through Prime Now, all of these other services, are the renaissance of food through the supermarkets and puts the industry in a reasonable place,” Potts said. “And for this company, a very good place.”
Morrisons was one of the first supermarkets to offer food parcels to help at-risk customers during the coronavirus pandemic. It now offers 10 types of home delivery box.
The latest box, launching today, is a 10kg British Farming Food Box including seven packs of meat (including rib-eye steak), two blocks of cheese, four pints of milk, a block of butter, a kilo of potatoes and five packs of British vegetables.
The £45 box, which includes next-day contact-free delivery, has been created to help British farmers sell produce that would typically be destined for restaurants. £1 from every box will be donated to farming charities through The Prince’s Countryside Fund.
This follows the opening of steak and seafood bars in Morrisons stores at the end of April, which are selling “restaurant-quality” meat and fish at reduced prices. Potts said the bars sold 52% of the nation’s steaks during one week.
“The customer spend, how much is in everyone’s trolley, is considerably up year on year,” Potts said. “What’s transpired, is with hospitality industries shut people are buying more fresh food.”
Morrisons’s best estimate is that the 2020/21 costs relating to Covid-19 are likely to be broadly offset by the business rates cost saving. However, the actual net effect will be dependent on the length of the crisis and how customers respond as lockdown eases.
Morrisons says there are other impacts on profit such as the temporary closure of its café business and lower fuel sales. It expects the net adverse impact on profit to be considerably more weighted to the first half.
GlobalData’s retail analyst Thomas Brereton says Morrisons is well-placed to ride out the worst of the coronavirus outbreak long-term.
“Given the ongoing economic impact of Covid-19 on non-UK countries, global food prices are forecast to rise considerably in 2021; however, Morrisons’ integrated UK supply chain will help shield it from any unexpected foreign inflation,” Brereton says.
“Furthermore, its extended partnerships with Deliveroo and Amazon increases its stability as grocery home delivery continues to blossom.”