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Wm Morrison Supermarkets PLC

TABLE OF CONTENTS
Wm Morrison Supermarkets PLC
MarketLine
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TABLE OF CONTENTS
Company Overview
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Key
Facts.........................................................................................................................3
SWOT Analysis
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Wm Morrison Supermarkets PLC
Company Overview
Wm Morrison Supermarkets PLC
MarketLine
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Company Over vi ew

COMPANY OVERVIEW
Wm Morrison Supermarkets PLC (Morrison or 'the company') is one of the largest supermarket chains
in
the UK, offering a range of branded and own label products. The company primarily operates in the
UK. It
is headquartered in Bradford, the UK.
The company reported revenues of (British Pounds) GBP16,122 million for the fiscal year ended
January
2016 (FY2016), a decrease of 4.1% over FY2015. The operating profit of the company was GBP314
million in FY2016, compared to an operating loss of GBP696 million in FY2015. The net profit of the
company was GBP222 million in FY2016, compared to a net loss of GBP761 million in FY2015.
Key Facts

KEY FACTS
Head Office Wm Morrison Supermarkets PLC
Hilmore House
BRADFORD
West Yorkshire
BRADFORD
West Yorkshire
GBR
Phone 44 845 6115000
Fax
Web Address www.morrisons.com
Revenue / turnover (GBP Mn) 16,122.0
Revenue (USD Mn) 24,643.8
Financial Year End January
Employees 47,925
London Stock Exchange (LON)
Ticker
MRW
Wm Morrison Supermarkets PLC
SWOT Analysis
Wm Morrison Supermarkets PLC
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SWOT Anal ysis

SWOT ANALYSIS
Morrison is one of the largest supermarket chains in the UK, offering a range of branded and own
label
products. The company's operations are vertically integrated, which allows it to manufacture,
distribute
and retail a majority of its fresh meat and dairy requirements, and process/package its fresh fruit and
vegetables in-house. Vertically integrated operations eliminate middlemen and improve profit margins.
However, intensifying competition could lead to pricing pressures, which, in turn, could reduce the
company's profits.
Strength
Differentiating through 'Market Street'
Vertically integrated operations
Focus on value conscious consumers
Weakness
Product recalls
Concentrated geographic operations
Opportunity
Rising popularity of online shopping
Positive outlook for organic food
Growing private label products market in the UK
Threat
Intense competition
Surge in shoplifting losses
Rising labor costs in the UK
Strength
Differentiating through 'Market Street'
Each of the company's stores features a Market Street, something similar to a traditional family food
shop
or a market stall. These Market Streets are staffed with skilled butchers, bakers and fishmongers.
Morrison employs more butchers, bakers, and fishmongers than any of its competitors. These skilled
staff
members prepare food according to customer requirements, and also offer customers knowledgeable
advice adding to their shopping experience and attracting them to shop more often at Morrison's
stores.
Since these staff members are able to respond quickly to changes in market demand, the company is
able to cut down on unnecessary waste and give customers what they want.
Specialty services such as these combine the convenience of supermarket shopping with the local
market
shopping experience and, in turn, act as a compelling proposition in attracting customers.
Vertically integrated operations
The company's operations are vertically integrated, which allows it to manufacture, distribute and
retail a
majority of its fresh meat and dairy requirements, and to process/package its fresh fruit and
vegetables inhouse.
Morrison is the second largest fresh food manufacturer in the UK. The company owns and
operates 15 manufacturing facilities in the UK. Additionally, it operates a fleet of more than 550
tractors
and 1,700 trailers, covering over 100 million kilometers per year.
Wm Morrison Supermarkets PLC
SWOT Analysis
Wm Morrison Supermarkets PLC
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Morrison's vertically integrated operations allow it to source and process fresh food in its own
facilities,
which is a major differentiating factor offering a significant competitive advantage. Half of the fresh
products the company sells in store are processed through its own factories. The company has been
focusing on further improving the quality and food processing ability in the recent times. In 2015,
Morrison
announced plans to establish the second fish production site at Grimsby, the UK. The new site helps
Morrisons double its production capacity from the current 250 tons of fish a week, once it becomes
fully
operational.
The company's vertically integrated operations eliminate middlemen and improve profit margins.
Furthermore, the business model allows Morrison to have direct control over its supply chain and
maintain
the required quality levels in its products.
Focus on value conscious consumers
Morrisons business focuses on value conscious customers. The company offers competitive,
permanently low prices to help its customers save money every day. From time to time, in order to
offer
its products at more affordable prices to the customers, Morrison has been reducing the prices for the
same. For instance, in 2016, the company reduced the price of approximately 130 top selling cooked
meat, fresh meat and poultry products by 12%. This was in response to the research finding which
says
that families are consuming more roasts mid-week. Simultaneously, it also reduced prices for over 30
fruits and vegetable lines. Morrison introduced its biggest ever price cut in 2016, which involved an
average price reduction of 18% for 1,045 every day products (including core grocery and dairy items).
In
line with its strategy to offer good quality of products for great value, the company reduced prices of
family essentials, including British meat (beef, pork and poultry), seasonal fruits and vegetables and
toiletries by approximately 56%. During the same year, Morrison announced price cut for 1,072
products,
majority of which included fresh food (fruits and vegetables). For the first time since 2009, the
company
brought down the everyday price of unleaded petrol to below 1 (approximately $1.4) per liter towards
the
end of 2015. Furthermore, in 2015, Morrison announced the price reduction of 200 everyday items
such
as bread, milk and butter by approximately 30%.
Apart from encouraging the customers through frequent price reductions, Morrison also offers certain
loyalty programs to its customers. For instance, the companys new Morrisons More loyalty card
launched
in 2016, allows its customers to earn extra points for their purchases at Morrisons cafes and fuel
stations.
The Morrisons More card offers five Morrisons More Points for every 1 (approximately $1.4) spent in
store (cafes, Flower Shop, Garden Centre and pharmacy); and 10 points per one liter of fuel
purchased at
the fuel stations. Moreover, when customers earn 5,000 points, they receive a 5 (approximately $7)
voucher. Furthermore, through Price Crunch marketing campaign launched in 2016, the company
communicates lower prices to its customers through external as well as in-store advertising.
According to a recent industry survey, price cuts play a very significant role in motivating the
consumer to
make purchases at supermarkets. More than 80% of the respondents in the same survey mentioned
that
price is the most significant motivator behind supermarket choice. Constant price reductions and
competitive offerings such as these have been driving the companys sales even amidst weak
economic
conditions.
Wm Morrison Supermarkets PLC
SWOT Analysis
Wm Morrison Supermarkets PLC
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Weakness
Product recalls
Morrison has been involved in several product recalls lately. For instance, in April 2017, the company
recalled certain batches of its trimmed beans due to possible presence of small metal pieces in the
product. In February 2017, Morrison recalled a batch of ready to eat peppered beef slices due to the
presence of Listeria monocytogenes in the product. The company recalled its Market Street assorted
party cupcakes due to labelling error, in January 2017. In 2016, Morrison recalled its 2 Sea Bass
Fillets
with Lemongrass, Lime and Chilli due to labeling issue. The Food Standards Agency mentioned that
the
product contains mustard, which is not mentioned on the label. During the same year, the company
recalled its own branded chocolate eclairs, Morrisons Cake Shop 4 Cream Chocolate Eclairs supplied
by
the manufacturer Bakkavor, due to potential presence of metal in the product. Morrison recalled its
own
branded Busy Bee childrens birthday party cake in mid-2016, due to possible contamination with
Salmonella. Further in the same year, Morrison also recalled its packs of 4 Salmon Skewers in a
BBQ
Dressing due to labelling issue. Frequent product recalls could tarnish the company's brand image,
resulting in decreased sales and profitability. It also results in operational costs and loss of sales
during
the recall process.
Concentrated geographic operations
Morrison's business operations are mostly concentrated in the UK. In FY2016, the company derived
100% of its revenues from the UK, while its closest competitor Tesco generated revenues from
different
geographic markets. For instance, Tesco and Marks and Spencer Group, Morrison's key competitors,
have presence in the UK, Asia and Europe. Concentrated operations make the company highly
vulnerable to any economic, political, or social changes taking place in this region. High dependence
on
the UK market makes Morrison vulnerable to the demand dynamics of this region and could have a
dampening effect on its revenues.
Opportunity
Rising popularity of online shopping
Online shopping has steadily grown in popularity in the UK. According to Office for National Statistics,
the
average weekly online spending in the UK increased by 19.5% in March 2017 compared with March
2016. The growing desire for convenience is seeing shoppers buy more online, especially in the food
and
grocery category. Improved delivery and fulfillment options have been encouraging consumers to
shop
more online. Furthermore, according to industry estimates, the online grocery market in the UK is
forecast
to almost double by the end of 2020.
With internet shopping rising at a rapid pace, supermarkets are establishing their presence in this
channel
to increase revenues. Industry players such as ASDA Stores, Tesco and Sainsbury already have an
established presence in the internet online shopping. Although Morrison has been slow to capitalize
on
this trend, it is increasingly focusing on strengthening its online business.
Wm Morrison Supermarkets PLC
SWOT Analysis
Wm Morrison Supermarkets PLC
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In 2013, the company announced a long term agreement with Ocado Group to enter online grocery
market. Since then, the company has been adopting various initiatives to expand its online presence.
For
instance, in 2016, Morrison entered into a new supply agreement with Amazon, to offer a wide range
of
fresh and frozen products to Amazon Prime Now and Amazon Pantry customers. Moreover, the
company
is also working with Ocado to grow its morrisons.com business. Morrisons will take space in Ocados
new
customer fulfilment center in Erith, the UK, and Ocado will deliver a store pick solution for the
company.
When implemented, this service would facilitate the expansion of morrisons.com operations across
the
UK.
Thus, the company's increasing focus on developing its online business will help it to increase its
sales
amidst the rising popularity of online shopping.
Positive outlook for organic food
Increasing consumer awareness of health and environmental issues along with an increasing
resistance
towards genetically modified (GM) food products and GM farming, has led to the rapid increase in the
demand for organic food. According to industry estimates, the market for organic products in the UK
grew
by approximately 7% in 2016, compared to previous year. Food and health and beauty categories
reported strong growth during the year. The market for organic products is expected to continue to
grow
in the future. Morrison offers a growing range of organic products, including dairy products, fruit and
vegetables, among others. Therefore, the company can leverage the growing consumer interest in
organic foods and increase its sales.
Growing private label products market in the UK
The demand for private label products is growing at a fast pace in the UK. According to industry
sources,
private label brands gained volume market share in 13 countries across Europe in 2015. Industry
sources
cite that more than 40% of the products sold in the UK were private label products. The UK stood as
the
third largest market for private label brands in Europe during 2015. The growth trend for private labels
is
expected to continue in the coming years with consumers intending to continue purchasing private
labels
even after the economy improves. Morrison offers various private label brands such as Morrisons
Cellar,
M Kitchen, NuMe, Just For Kids and The Best. Therefore, increasing acceptance of the private label
products will have a favorable impact on the company's revenues.
Threat
Intense competition
Morrison faces intense competition in the retailing business from other supermarkets and discount
stores.
Its main competitors include J. Sainsbury, Tesco and ASDA, in addition to numerous other small and
local store operators. Morrison lags behind its key rivals as far as development of smaller
convenience
stores, multichannel retailing, and non-food category are concerned. Competitive pressure in the UK
retailing industry is rising further with competitors like Marks and Spencer expanding operations in
both in
the UK and emerging economies such as India and China. Morrison is focusing on strengthening its
Wm Morrison Supermarkets PLC
SWOT Analysis
Wm Morrison Supermarkets PLC
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market position by improving the performance of its online and convenience stores businesses.
Intensifying competition could lead to pricing pressures, which, in turn, could reduce the company's
profits.
Surge in shoplifting losses
The UK retailers are exposed to increased costs of shoplifting. Shoplifting has assumed massive
proportions in recent times. According to industry estimates, retail crime cost in the UK stores was
about
230 million (approximately $311.8 million) in 2016. Long-term trends also show the figure is likely to
continue rising. As a result, retailers have been increasing their surveillance spend. This is increasing
the
costs for retailers as well as for the end consumers. The shoplifting losses are adding to the costs for
the
retailers and the customers have also been bearing the brunt. The surge in shoplifting losses could
negatively impact Morrison's profitability.
Rising labor costs in the UK
Labor costs are rising in the UK. The National Minimum Wage (NMW) Regulations came into force in
1999 and since then the NMW rates have been increased annually. The NMW (for people aged 21
and
over) in the UK increased from 6.08 per hour (approximately $9.9 per hour) in October 2011 to 6.19
per
hour (approximately $10.1 per hour) in October 2012. This further increased to 6.31 per hour
(approximately $10.3 per hour) in October 2013, 6.5 per hour (approximately $10.6 per hour) in
October
2014 and 6.7 per hour (approximately $11 per hour) in October 2015. The NMW (for people aged 21
to
24) was increased to 6.95 per hour (approximately $8.6 per hour) in October 2016. Furthermore, in
April
2016, the UK government introduced a new law, The National Living Wage (NLW). NLW is
applicable to
working group aged 25 or above and those who are not in the first year of their apprenticeship. As per
the
new law, effective October 1, 2016, people aged 25 and over are paid a minimum wage of 7.2 per
hour
(approximately $8.9 per hour). Rising labor costs may increase the operational cost and reduce the
profitability of the company.
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