Now that the leaky bucket that was M Local stores has been sold to a team led by retail entrepreneur Mike Greene, we should expect that Morrison’s profit future will look healthier.
The impulsive opening of the convenience stores in poor locations and at high rents was unlikely ever to make money for the grocer but to continue to let the stores trade at such a loss was killing the whole business.
Its approach was not considered not only in terms of location and rent but also in terms of proposition and format. Space was limited, ranges were more extensive that needed and overall the impression of the stores was poor.
Lessons will have been learnt and as Potts said in his statement yesterday, Morrisons has not ruled out the possibility of another crack at convenience.
The growth of the format which is now worth £37.7bn and the competition’s stance on convenience puts Morrisons even further on the back foot and lagging behind the sector. Profits are down and yes the core business needs focus and investment. The disappointment for Potts will be that the sale of M Local didn’t raise more cash and actually leaves the retailer £30m down.
Potts still has a long to-do list which just continues to get longer rather than shorter. With every trading update comes more pressure to turn the retailer’s fate and deliver some good news.
Focus on core supermarkets is warranted, this is where the profit is generated that can support future format development, but is also where the most investment is required. The chicken and egg situation is pushing sales, to raise cash to invest in delivering more profitable sales.
The six priorities cited by Potts in the interim statement today are exactly what the business needs, simple back to basics retailing. However, it’s competition is increasingly sophisticated and creative.
We would like to see Morrisons invest in advertising, identifying its core audience and reconnecting by leveraging existing assets like its vertical integration. We would also love to see Match and More used in a more innovative way to attract customers in the short term run up to Christmas. Perhaps the priority of listening will extend to retail consultants too?
Time is of the essence and a poor Q3 trading would put Morrisons in a very weak position so we will be watching for some quick decisions from Potts in the coming weeks and importantly some quick wins.