Morrisons is the latest UK supermarket chain to get its recovery on track, and fresh produce was a key driver as it announced full-year results this morning that show pre-tax profits of £331 million, up from £54m in the previous year.
Turnover rose by three per cent in the year to February 4, to £12.5 billion and like-for-like sales, excluding fuel, rose by 5.2 per cent. Morrisons grew by two per cent, excluding fuel, in the 12 months, with disposal effects keeping it below the overall TNS-measured grocery market growth of 3.4 per cent.
The chain highlighted its increased focus on health, adding sales of its Eat Smart, Organics and The Best ranges were up 47 per cent, 20 per cent and 58 per cent respectively. It also pointed to strong performance from smaller stores, claiming this is because of better range selection, merchandising techniques and labour efficiency.
And fruit and veg were at the forefront of the return to form. “The strong performance of fresh produce benefited not just our retail business but also our manufacturing operations, which were operating towards full capacity for much of the year. This provided a welcome boost to profitability,” said chief executive Marc Bolland.
Chairman Sir Ken Morrison said: “We remain at the early stages of our profit recovery, but I believe that good foundations have been laid as demonstrated by delivering the first stage of our Optimisation Plan and I am delighted that we welcomed Marc Bolland to the business.”
He added, in his chairman’s statement: “The Board is very aware of the spotlight that is on food retailers with regard to promoting healthy eating and being environmentally responsible. We believe that exercising social responsibility is entirely compatible with delivering continued profit recovery and we are pleased, this year, to be publishing a corporate responsibility report for the first time.”
Bolland, in his operating review, said that early 2006 was characterised by price deflation on core lines, including milk, bananas and bacon. “No volume retailer can afford to be out of line with the market on such staple items,” he said, “but equally cutting prices on them will not result in sales uplifts adequate to compensate for margin foregone.
“For a number of years, food retail prices have been declining, giving ever greater value to consumers and reflecting the intense competition in the market. In 2006-7, there were reports of inflation again entering the market, as producers and retailers sought to pass on to customers the cumulative effect of high energy, commodity and business rates costs. At some periods in the year, and in some categories, particularly fresh produce, we saw inflation in the business.
Morrisons manufacturing businesses, which include six fruit and vegetable packhouses, will play a key role in future growth, he said. Collectively, Morrisons manufacturing businesses rank as a top-5 UK food producer. “We reviewed them thoroughly and confirmed that, financially, they are important profit contributors to the group that justify their capital employed…we have confirmed our commitment to invest and grow the businesses, as they provide vital support to our aim of being the food specialist for everyone. Through the control of the supply chain created by our vertical integration, we can monitor sourcing quality more closely, and bring product to market more quickly, than competitors.”
Morrisons is working to address areas of weakness, Bolland said: “In some stores, soft fruits are displayed at ambient temperature rather than refrigerated and this can cause issues in hot weather. Similarly, some potatoes are transported in non-refrigerated lorries. We intend to invest in refrigeration in store, in trailers and at our packhouse at Flaxby to address this issue, with consequent benefit to the product quality delivered to our customers. As our business grows, we will need further capacity in fruit and vegetable packing, and we will be seeking a new facility to open in 2009.
Echoing his chairman, he said: “An important, and encouraging, feature of this year of the year was the increasing focus by consumers, the media and the industry on health, quality, freshness and the provenance of food. This was a shift away from merely focusing on price, the main area of attention in the previous five years. A combination of factors has contributed to this, including great consumer interest in food and drink programmes on television and a national debate emerging over obesity concerns.”
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