Baby Ace: ALEX BRUMMER: Morrisons" price war could help struggling families if all of the supermarkets are forced to lower prices

Thursday, March 13, 2014

ALEX BRUMMER: Morrisons" price war could help struggling families if all of the supermarkets are forced to lower prices

By

Alex Brummer

Wm Morrison chief executive Dalton Philips is either a retail genius, who suddenly has seen the light on the changing shape of Britain’s grocery market, or has found a grand theory to hide the shortcomings of the group he heads.

Whatever view one takes he is unlikely to be the pin-up of shareholders in the big supermarket groups, who saw their shares ravaged by Philips’ declaration of a price war.

Not that this is always a bad thing.

Heavy losses: Morrisons sent a shiver down the High Street after issuing another profit warning that also wiped 8 per cent off the shares of rival Sainsbury

Heavy losses: Morrisons sent a shiver down the High Street after issuing another profit warning that also wiped 8 per cent off the shares of rival Sainsbury’s and 4.9 per cent off Tesco

If food prices start to tumble in the

stores, as a result of the Morrisons challenge, all those families

struggling against the background of the last five years of hard times

will be cheering from the sidelines.

The Morrisons view is that the Aldi and Lidl challenge is here to stay and British supermarkets are going to have to fight fire with fire by relentlessly cutting prices and ranges if the overseas assault is to be seen off.

Philips likens the price war ahead as a bit like that in the airline industry that has seen easyJet and Ryanair become giant carriers and in clothing where Primark has stolen share from Marks Spencer.

There is an element of truth to all of this. But Morrisons also has itself to blame for the pre-tax loss (after write-offs) of £176million and the prospective halving of profits in the coming financial year.

Until the deal with Ocado, done at a relatively high price, its online strategy was a disaster. Deals with Kiddicare here and Fresh Direct in New York have demonstrably been shown to be follies. It has also been let down by some ancient logistics and antiquated tills and systems.

The group started investing in convenience stores light years after Tesco set course.
Nevertheless, Philips has a point.

The German challengers are behemoths that have been conquering Western Europe.

They launched their UK challenge in the North –where Morrisons is strongest – and are now moving South. So what is the Bradford-based grocer’s problem today, could be Tesco’s, J Sainsbury and Asda’s tomorrow.

If there is a difference it is that Asda has the power of WalMart behind it, Sainsbury has Qatar as a strategic shareholder and Tesco –as the biggest of beasts in the UK jungle – has a large amount of market share to lose before it is brought to its knees.

Morrisons, now that the family is no longer the dominant influence, lacks a sugar daddy.

It is paradoxical that Morrisons, which has its own supply chain from farms to factories, making some of its produce more expensive, is choosing to fight on price where it has one hand behind its back.

Nevertheless it is a brave challenge, conducted with confidence that the cash flow is still strong and aided by the release of £1billion from superfluous property sales.

Philips has set out his stall and a brutal battle has commenced. But no one can be sure he has chosen the right weaponry.

Fitness tests

After several days when oversight of the Bank of England has been the focus of attention, following the rigging of foreign exchange rates, the attention is now back on the banks it regulates.

It is looking at two separate issues.

First, it wants to ensure the rewards of bankers are properly aligned with the interest of stability and the Bank thinks the current practice, of looking across a three to five-year time horizon, is not good enough because it does not fully straddle an economic cycle.

Some City interests are certain to dispute this view on the grounds that such stipulations may make the labour market in the Square Mile less competitive than that in New York and across the Asian markets.

The Bank also is being asked to re-examine the licences of the upper echelons of British finance.

A series of poor appointments including Lord Stevenson and Andy Hornby at HBOS, Sir Tom McKillop at Royal Bank of Scotland and, most notoriously, the Reverend Paul Flowers at the Co-op, have demonstrated the need for senior bankers to have some depth of experience in the financial sector.

It will be fascinating to see if the exercise carried out by the Prudential Regulatory Authority, throws up any anomalies.

The good and the great had better start polishing their CVs.

Trapped eagle

Being chair of the Barclays remuneration panel is turning out to be the City’s most poisoned chalicey.

Dame Alison Carnwath took the fall for Bob Diamond’s extravagances and left the board after suffering a heavy vote against reappointment. Now Sir John Sunderland, long serving veteran on the Barclays board, is under fire for the payments made since Carnworth’s exit.

Judging from the reaction at Canary Wharf, it doesn’t appear as if anyone is rushing to the barricades.