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It’s hard to get back into the frantic mindset many of us had in the supermarket earlier this year. A bizarre time in which national flour shortages made the news and the toilet roll aisle seemed to stay empty. If you’re like me you might have wondered where all the eggs went at one point too.
As the realities of lockdown began to incite stockpiling among UK consumers in late March, investors were eyeing the opportunity in front of the nation’s supermarkets. But, for those picking up shares in the hope of a sharp rise in panic-buying, it hasn’t been as straightforward as converting fuller trolleys to higher profits.
Today’s update from big-four supermarket Morrisons shows how hard it has been for the sector to keep the shelves stocked and stay profitable in 2020.
Sales at the group, excluding fuel, rose by 8.7% in the six months to August but virus-related costs hit the bottom line hard with pre-tax profits falling by a quarter.
The company saw costs jump by £155 million as it refitted stores, took on more staff and provided bonuses in a bid to cope with demand. These extra costs had been offset somewhat by £93 million of business rates relief over four months, with the firm pointing to reduced fuel sales as a further challenge to overall income.
With 45,000 new staff on board to help ‘feed the nation’ the chain’s costs echo those of the likes of Tesco, who highlighted earlier this year the effect of increased staffing outweighing any potential benefit from eager shoppers.
But while there is a short-term balancing act playing out here, there is likely to be a more lasting one developing at Morrisons, and across the sector as a whole.
Back in June it became the first supermarket to open a national takeaway service and with the expansion of ‘Morrisons on Amazon’ and Deliveroo set to pick up in the second-half of the financial year, it’s taking the delivery side of the business a step further. Having launched its range of food boxes, initially to vulnerable and self-isolating people, now anyone who wants one can place their order.
Now is the time for grocery firms to test the waters with new propositions and quickly assess what works - it looks like Morrisons gets that. And while Ocado was the pre-pandemic poster boy for innovation in supermarket fulfilment and distribution centres, it looks like that’s one area all the big players are being forced to accelerate this year.
It’s early days for many of these initiatives and also indeed for the pandemic. What happens next in terms of customer trends and spends and in the wider economy will all play a part in shaping the future of Morrisons.
For now though, shareholders should be happy with the 2.04p interim dividend and there’s even the prospect of the second half 2019/20 and full year 2020/21 special dividends popping up yet in the March results announcement.
More on Morrisons
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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