While there’s a certain guarantee that whatever’s going on in the economy, people will still need to shop for groceries, it doesn’t make supermarkets immune from the current challenges retailers are facing.
Over the past few years supermarkets have had to constantly evolve. Just look outside one today and you’ll probably see more smaller trolleys than larger ones. The reason for this is more and more people are doing their bulky shop online and making smaller, more frequent visits during the week.
As well as the move online, the arrival of the German discounters Aldi and Lidl have kept prices in check. Now with Coronavirus the supermarkets are facing a new set of challenges - potential staff shortages, a reduction in footfall - but an increase in online deliveries - as well as panic buying. The outlook is far from certain.
On Wednesday we’ll hear from the UK’s fourth largest grocer, Morrisons, as it reports to shareholders.
The UK grocery market is extremely competitive with Tesco still the most dominant player with 27% market share. The most recent reading from Kantar puts Morrisons’ market share at 10.2%, with Aldi close on its heels at 7.9%.
In the company’s last trading update, covering the 22 weeks to 5 January, like-for-like sales were down 1.7% (excluding fuel) or down 2.8% (if you include fuel).
Sales have been losing momentum since the summer of 2018 when the football World Cup and warm weather boosted sales across the industry.
This can be seen in the share price which has been steadily declining since September 2018.
Morrisons’ wholesale division, which supplies McColl’s convenience stores and petrol station operators has also slowed.
Looking ahead, keeping a firm eye on costs continues to be key for the Bradford-based supermarket chain, not just on the products they sell but on staff costs too. In January the company announced plans to change the way its stores were staffed. 3,000 managerial positions have been cut, while 7,000 new lower-level in-store roles have been created. This means a net increase of 4,000 jobs.
Of course, the move to online shopping continues to be crucial for supermarkets. Look out for updates on the company’s deal with Amazon to provide ultra-fast same-day grocery deliveries to more cities in the UK.
Morrisons share price, currently at 172p, has held up reasonably well during the recent stock market volatility.
Looking at broker coverage, in February Credit Suisse gave Morrisons share price an “outperform” rating with a price target of 225p. Meanwhile Barclays lowered its target price from 180p to 175p with an “underweight” rating.
For those looking for an income the company currently offers a dividend yield of 3.8%, which is below the current average for the FTSE 100 of 5.5%.
The results are out on Wednesday 18 March.