Big four supermarket Morrisons this morning announced plans to expand its ultra-fast delivery service across the UK. The chain’s new deal with partner Amazon, allowing delivery within one hour in some places, comes alongside a raft of new changes designed to lift its fortunes and gain market share in a troubled sector.
The same day service will be rolled out to Glasgow, Newcastle, Liverpool, Sheffield and Portsmouth this year, as the company looks to fend off competition from the German discounters.
Still the UK’s fourth largest grocer, Morrisons is facing more pressure than ever, from Aldi in particular, with the most recent reading from Kantar putting the stores’ market share at 10.1% and 8.1% respectively.
And today’s results from the Bradford-based firm show a mixture of that pressure as well as some highlights investors will want to keep an eye on.
Despite like-for-like sales and total revenue remaining broadly flat, earnings per share came in on target, up 4.1%. And news of a special dividend will go some way to easing concerns about a tough summer for the supermarket, which had no World Cup to boost sales this time round.
The market seems to have taken this into account, sending shares in the company up 4% at the time of writing.
However, it’ll take more than a ‘could be worse’ attitude to lift Morrisons into third spot in the UK supermarket league - a position currently occupied by Asda, with 14.9% of the market. And perhaps this is where investors need to concentrate their attention from now on.
The major players are slowly diverging in their corporate strategies, in a bid to differentiate themselves from the competition. While there are still the inevitable price-focused propositions like Tesco’s Jack’s, designed to take on the Germans, these efforts can end up thinning margins out even more in the race for market share.
Rather, tie-ups with technology firms to offer streamlined services and quick delivery could prove pivotal if shoppers can be convinced here as they have done with the likes of Amazon Prime.
If this is where the sector is headed, Morrisons are ensuring they have a headstart. Further to their Amazon partnership, they still have links with Ocado, albeit looser than earlier in the year.
And, in fact, firms like Ocado might be where investors look for long-term exposure to the sector. Its proprietary robotics and AI technologies are slowly spreading among firms in the US, with Ocado itself now putting its business in the tech bucket, away from retail despite being the fastest growing supermarket this year, with sales up 12.6%.
For Morrison’s the future means continuing to put products in other stores after boss David Potts beefed up the retailer’s wholesale division with its Safeway brand, and franchise and supply partnerships with Sandpiper CI, the largest retailer in the Channel Islands. The retailer has also started to supply products to Thai grocer Big C and MPK Garage, as well as rebranding many of its McColl’s stores to Morrisons Daily.
Its shares might appeal to value-seekers, with a well-supported dividend a confidence booster for bargain hunters.
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