Morrisons and the end of the weekly shop

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing3 November 2017

Troubled supermarket chain Morrisons appears to be back on track reporting a 2.5% rise in sales for the third quarter of this year - its eighth quarter in a row of sales growth. It is now growing faster than its main competitors Tesco, Sainsbury’s and Asda, according to data published last month by Kantar Worldpanel.

The UK’s fourth-largest supermarket has been struggling to fight off fierce competition from its rivals, especially the discounters Aldi and Lidl. As consumers feel the squeeze of low wage growth and higher inflation, it’s been a tough job for the UK’s “big four” supermarkets who, understandably have been reluctant to pass on rising food prices. Yesterday’s rate rise news, though modest, will further add to their challenges as price-conscious shoppers become more demanding.

Inflation is a concern. After more than two years of price falls driven by supermarket price wars, prices began to rise again at the start of this year. The main trigger for its return was last year’s EU referendum which led to a fall in the pound, which in turn makes imported goods more expensive. Retailers keen to maximise their key Christmas sales period managed to hold off passing on the price rises till the start of this year.

But it’s not just low prices that supermarkets need to keep ahead of, it’s changing consumer trends too. The Waitrose Food And Drink Report 2017-18 reveals some fascinating changes in our shopping habits. Blueberries are now more popular than strawberries and dark green vegetables such as kale and chard are growing in popularity. However it’s not what we buy, it’s how we buy which is becoming more crucial to retailers.

Gone are the weekly supermarket trips where, armed with our shopping lists, we planned ahead and filled up our trolleys with a week’s supply of groceries. Now two thirds of us regularly, or occasionally visit a supermarket more than once a day. This trend is particularly prevalent among 18-24 year olds, who are twice as likely to regularly visit a supermarket twice a day as the over-55s.

It appears the majority of us no longer plan meals in advance and have turned into modern ‘hunter-gatherers’, shopping for food only when required. The rise in smaller, local convenience stores with longer opening hours has made this easier for us, alongside our willingness to use self-checkouts and contactless payments which speed up the process.

According to the Waitrose survey, just a few years ago an average Waitrose store would open with around 200 big trolleys and 150 shallow ‘daily shopper’ trolleys. In a complete about-turn a new store will now have 250 shallow ‘daily shoppers’ and just 70 big trolleys lined up outside.

But of course, the bricks and mortar stores are only half the story. Our enthusiasm for buying all things online continues to develop and this is an area where Amazon is determined to gain more market share. In February 2016 a groundbreaking tie-up between Amazon and Morrisons was announced, enabling fresh, chilled and frozen food made by Morrisons to be available on Amazon’s Prime Now and Pantry services. A similar scheme with Booths - the so-called “Waitrose of the North” was announced last month enabling its range of upmarket groceries to be available for the first time in London and the Home Counties where Amazon serves.

Looking ahead, as Amazon becomes more dominant and supermarket chains continue to develop their online ordering and delivery services, we are likely to see less and less need for large supermarkets. More of us will be making frequent visits to the local supermarket for fresh items, while leaving the often heavier, longer shelf-life items to an online shop. This could change the face of supermarkets as aisles previously filled with tins of more durable items are given over to clothes and non-food items, aimed at impulse purchases.

As the retail sector is forced to adapt to ever-changing customer demands, there are opportunities for those investors willing to hand pick those truly customer-focused companies with the potential to succeed. For investors looking to take part in the opportunities this represents, a fund is one way of dipping a toe into the water. The Majedie UK Equity Fund which features on our Select 50 list of recommended funds has Morrisons and Tesco in its top ten holdings.

Meanwhile Amazon is the largest holding of the Rathbone Global Opportunities Fund which also features on our Select 50. Fund manager James Thomson has held the stock for the past five years, attracted to Amazon’s strong customer focus and willingness to take on risks. In an interview with the Telegraph in April he called them “one of the most innovative and exciting companies in the world, particularly for growth oriented investors.” It’s easy to see why.

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