As predicted by analysts earlier this week, Morrisons pre-tax profits jumped by 19 per cent in the six months to August 3.
Marc Bolland, chief executive of the Bradford based supermarket chain, claimed a new 500,000-strong army of shoppers are choosing the shop their aisles due to “price-crunching deals”, as it turned in a pre-tax figure of £295 million.
Like-for-like sales, seen by many in the City as a true yardstick of performance, were up 7.6 per cent, despite Morrisons admitting that it faces challenging times. “The consumer environment in the first half of 2008 was the worst for many years, with disposable incomes dropping significantly as a result of the tightening of credit availability and increases in energy, commodity and other household costs,” said its trading statement. “In the grocery market, consumers experienced food price inflation on basic items, although intense competition in the sector ensured that underlying producer cost increases were not passed fully into retail prices.”
Food price inflation made a significant impact on the group’s first half, but rebranding and a refocusing on delivering cut price offers has paid dividends.
The statement added: “During the period the slowdown in the economy inevitably led to a strong focus on value. Whilst our premium ranges and fresh food continued to show good growth, we also placed stronger emphasis on our value ranges, which were relaunched, and the promotions for which Morrisons is renowned. A number of hard-hitting deals were offered, including a series of discounts through the Sun newspaper and a basket of everyday fresh products at 50 pence each, a heavy discount to normal retail prices.
“The latter promotion was well supported by our manufacturing businesses, which were able to deliver significant volume increases at very short notice. This is without doubt a unique advantage enjoyed by Morrisons. The intense price competition and promotional activity in the period meant that not all input cost inflation could be passed on in higher retail prices. However, our strong sales momentum and progress in our various 2010 improvement initiatives allowed us to overall.”
Morrisons feels well placed to continue its momentum through the second half of this financial year. “In our Optimisation Plan, we have targeted to grow annual like for like sales ahead of the market overall,” the statement said. “The momentum of the first half year has set us up well to achieve this for the full year, despite the challenging comparatives as we approach Christmas. The first half profit performance gives us confidence that we will deliver our profit expectations for the year. We fully expect the second half to be highly competitive as disposable incomes come under further pressure, and we will continue to use our sales momentum to fund price investment and maintain a strong competitive position.”
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