SIMON WATKINS: Morrisons declares war

By

Simon Watkins

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There have been so many phoney supermarket price wars in recent years that shoppers could be forgiven for shrugging sceptically at last week’s latest outbreak of hostilities.

Morrisons’ opening barrage – saying it would spend £1billion cutting prices over three years – sent shares falling across the sector as analysts predicted that this war would be real and the first casualty would be profits.

If correct, this would be a boon to consumers. The proof of the knock-down price pudding will, however, be in the eating.

Declaration: Morrisons said it would spend £1billion slashing prices over three years

City sources close to one of Morrisons’ key rivals insisted they would be unlikely to leap headlong into a race to the bottom on prices.

There are some grounds for believing this. While Aldi and Lidl have eaten into the market shares of larger rivals, one success story of recent years has been Waitrose, which would boast that it is price competitive on staples, but it has hardly garnered a reputation as a discounter.

Also, Morrisons does not match the geographical spread of the larger groups. Many consumers will not have the choice of shopping at one of its stores.

Finally a ruthless boss of any rival might wait to see how much pain Morrisons has to take to implement its price war. Time is not on its side and chief executive Dalton Philips is already wounded by its failures. He looks very much like a man on the retreat rather than attack and may not have long to deliver his recovery.

But let us assume that his war really gets bloody and rivals are forced to take a hit to keep pace. Can Philips win? Aldi and Lidl have clearly already taken up strong positions and are geared towards a discount model. Morrisons will be fighting them on their territory.

Meanwhile, the larger players could have an unexpected war chest of cash on which to draw to fight the battle.

The giants have for years been spending billions on increasing numbers of ever-bigger stores. Thanks to a switch by customers to smaller, more frequent shopping trips, often to more local stores, the pace of expansion by Tesco, Sainsbury’s and Asda is set to diminish and may even reverse.

Opening convenience stores and investing in the growing internet market will involve other costs, but one supermarket finance boss recently said he expected that the strategic shift would on balance release more cash. That could be used to lift dividend payments or be put towards fighting the price war – or a bit of both.

Declaring a price war is a brave, some might say desperate, step by Philips.

Shoppers can only gain from this. Shareholders across the sector are in for a uncertain ride.

However, for Morrisons and Philips, perhaps ‘opening barrage’ was the wrong phrase to use – it could be his Charge of the Light Brigade.

Comments (5)

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Michael the un pc,

sittingbourne, United Kingdom,

1 hour ago

Overall Morrison’s does work out cheaper than Asda

brownmaggie,

AYLESBURY,

1 hour ago

The problem with Supermarket price wars are the lower prices are only temporary, whereas with Aldi and Lidl the lower prices are permanent.

Ryan Gazzan,

Salisbury, United Kingdom,

2 hours ago

Most of these supermarkets BOGOF offers are for daft stuff like fabric conditioner, fizzy drinks etc – hardly the items we want price reductions on. Lidl and Aldi just charge low prices and a limited range – ideal to me for stress free shopping – I don’t have to stand there and work out all these offers.

CARL,

SHEFFIELD, United Kingdom,

4 hours ago

The big supermarkets, like all other big companies who supply necessities pitch their prices at what they think the market will stand and not at giving value for money. They reduce prices on stock that isn’t moving but aren’t all that bothered if it gets dumped in skips if it doesn’t get sold. The original price that they set is probably 100% higher than they paid the supplier for it so an amount of wastage is perfectly acceptable.

forestbwick,

barnoldswick,

11 hours ago

my local vegi stoere in town is half the price of supermarket fruit and veg and the meat at the market butchers is much cheeper and top quality why pay out at supermarkets only go once a month now for bits and pieces

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SIMON WATKINS: Morrisons declares war