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Grocery Guru Ep 20: Morrisons’ Preliminary Results
Join Andrew Grant and Darren A. Smith in the twentieth episode of Grocery Guru discussing Morrisons’ Preliminary Results for the 52 weeks to 31st January 2021.
You Can Read the Full Morrisons’ Preliminary Results Episode Transcript Below:
Darren A. Smith:
Welcome to episode 20 of our weekly chat with the Grocery Guru that is Andrew Grant. Andrew, how are you?
Andrew Grant:
Morning, Darren. Very good, thank you.
Darren A. Smith:
Good, good. Okay, so in this week’s 10-minute chat with the Grocery Guru, we’re going to talk about Morrisons’ preliminary results, because they’re the first after COVID, is that right?
Andrew Grant:
Yeah, the first major retailer to put out full-blown annual results post COVID, January 31st. Obviously, you’ve got Tesco and Sainsbury’s following in the next few weeks.
Darren A. Smith:
Right, okay. The general people, good, bad? What did you think of the results?
Andrew Grant:
It’s fascinating actually because the headlines I think in the press yesterday were the share price dropped significantly because I think the city suddenly realized the sheer cost of this pandemic to the supermarkets. On the face of it, they’ve done really well, and the chief exec was praising how well the business had done, and they have done a phenomenal job if you think about it, all the supermarkets feeding the country with a little issue of Brexit in the middle.
Andrew Grant:
Yeah, they’re like-for-like sales, the standard industry measure of sales performance up 8.6%. That would be … supermarkets would’ve given their right and left arms for that two years ago.
Darren A. Smith:
In comparison, 8.6, but 2019 on the previous year was down .8%, so it’s really a 9. 10. stretch. You’re right, would’ve given their arms or legs.
Andrew Grant:
But then, their profit’s down 50.7%. Was it 290 million spent on COVID costs, restructuring, PPE, additional staff, additional vans and online delivery, and then 230 million of business rates that they handed back to the government, so they carried on paying? What’s that, 520 million they could’ve made if it hadn’t been for COVID. They made 400 million last year, and it’s cost them 500 million. It’s cost them a years of profits to survive COVID.
Darren A. Smith:
That’s a good takeaway, isn’t it? A year’s profits to survive COVID, because all of us look at industries like hospitality, and think they’re wiped out, they’re struggling, it’s going to be hard to come back. The supermarkets are doing really, really well, but they’re not.
Andrew Grant:
Think about it, it’s this spike effect, isn’t it? The supermarkets have had this big, 10% spike, plus a massive spike in costs, and they’re driving, at the moment, headlong into that. I think I’d rather be a pub chain, where all of a sudden when I open up in May, I’ll be 300% up on the year. The figures will look fantastic.
Darren A. Smith:
That’s very true. I guess, maybe don’t look as hard and as fast as people like you and I and account managers out there, but if they are, you’re right, they’re going to be up hugely. I noticed other things like 300 McColl’s stores to be converted to Morrisons Daily over the next three years. A new contract with McColl’s signed to extend the partnership to 2027, so there’s some good news in there.
Andrew Grant:
Yeah, becoming big in convenience, absolutely. One thing that got me, and whether I’ve done these … because, I’m not a city analyst, I wish I was, but net profitability, the argument’s always gone that the supermarkets in the UK are incredibly efficient, because basically their net profitability’s 2% on average.
Andrew Grant:
2p in the pound is all they make from all the work they do, and Tesco always lauded, back in the day, that they got over 5 pence in the pound profit, and Dave Lewis left on a massive high last year getting it back to 4.2, I think.
Darren A. Smith:
4.2? Okay.
Andrew Grant:
Morrisons last year was bang on the average, 1.98% margin, net margin. What do you think it was last year when you do the sums?
Darren A. Smith:
Don’t know. Go on, tell me.
Andrew Grant:
Just over a half, .5p in the pound profit for everything they did. That is a lot of hard work, effort, and energy for half a p in the pound.
Darren A. Smith:
That is not a lot, is it? It sort of reminds me of Thomas Cook, you look at big companies like that who have billions, but actually, do they make money?
Andrew Grant:
Yeah, so it is quite interesting. We spoke last week about Amazon Fresh opening, and how if they want to expand quickly, do they just take out … overall the disused Topshop’s and Dorothy Perkins littering the high streets, or do they buy a ready-made retailer?
Andrew Grant:
Morrisons operating profit, 254 million. I don’t know what multiples supermarkets sell on, but say Amazon had to pay 10 times that, two and a half billion, they’re working a couple of trillions, so it is small change for Amazon to say, “Let’s buy Morrisons.”
Darren A. Smith:
That’s very true, and then they could dominate the market very, very quickly, and take a 10% share overnight. Very true.
Andrew Grant:
The fact that Morrisons share price dived so dramatically yesterday would say that Amazon isn’t on the city radar, otherwise, it would’ve gone up.
Darren A. Smith:
Very true.
Andrew Grant:
I think the takeout of all of that for Morrisons, and for the other, because obviously as I said, Tesco, Sainsbury’s, and the others will be published in the next four weeks, I’m sure it will be a similar story. They are driving headlong into some pretty horrific comparables. They won’t get the same sales growth this year, because people will go back to restaurants and pubs, so a huge chunk of their food, and particularly the drink business will go back to normal, so big like-for-like declines there, but this continuing cost base, because they’re still going to have to … online deliveries have changed forever, so the extra cost of vans and people driving them and picking is still going to be there …
Darren A. Smith:
It comes back to a point a moment ago about hospitality, there’s an argument that because we’ve all been locked down for nearly a year, maybe we’ll go out more. What was once a week treat, a pub might be twice a week.
Andrew Grant:
Yeah, and will all 60 million of us end up in Benidorm, because we’re desperate to get a foreign holiday? Maybe the country will be empty in August.
Darren A. Smith:
It could be. Bird’s Eye used to say, “It’s about the share of stomach.” Are we going to have two pub meals a week, and therefore we’re not buying as many groceries, so what will they be like when per cent growth is going to go down even further?
Andrew Grant:
Yeah, so some big sales challenges, but then the costs, how do they get those cost under control? They’ve still got to pay the van drivers, they’ve still got to pay the in-store pickers, there’s still going to be distancing restrictions, they’re still going to have to keep investing in all the plexiglass, and the masks, and hand sanitisers, you would imagine, so where do they control their costs against falling sales to deliver any sort of profit?
Andrew Grant:
Only two ways, you cut your costs dramatically, and all of them have just announced in the last few weeks head office and store management restructurings, and then obviously, Sainsbury’s in the last couple of weeks, “We’re going to price match Aldi,” and a very nicely worded letter to suppliers saying, “Please, help us on our journey to deliver better value for our shoppers,” which in your language and my language is give us some cost reductions.
Darren A. Smith:
Also, the other part is Morrisons, very admirably, are the first to a minimum of £10 to all their staff?
Andrew Grant:
Yeah.
Darren A. Smith:
That’s got to come from somewhere as well, which is all very admirable, but this is on top of costs that are ramping out of control.
Andrew Grant:
Yeah, you can imagine that the suppliers, many of them have been reeling over the last year. Some categories have done very, very well, as we know the comfort food area has done very, very well, but obviously, they’ll have increased costs, and then I think we’re going to get the supermarkets coming with requests.
Darren A. Smith:
We won’t touch on this. I’m just going to bring out one other thing, so we’re talking about the news released preliminary results for the 52 weeks ending 31st January 2021 for Morrisons, and one of the things I noticed, Andrew, was online sales tripled during the year, with capacity up fivefold? Not a surprise, but quite stark to read that. Morrisons on Amazon is available in 50 towns and cities, and already accounts for more than 10% of sales in the majority of stores.
Andrew Grant:
I saw that that is quite interesting.
Darren A. Smith:
It is, they’re getting closer and closer, aren’t they?
Andrew Grant:
Yeah.
Darren A. Smith:
A piece about carbon neutral with the British farming supply chain, and then one other bit I noticed was they’ve extended a 10% discount for all NHS staff for the whole of 2021. Again, another cost, very admirable.
Andrew Grant:
As I was told yesterday, I haven’t seen it, but they’re doing £10 afternoon Mother’s Day teas. One of these meal deals where I think for 10 quid you get some nice little triangular sandwiches, some cakes, some clotted cream, all put together for 10 quid to take round to your mom’s, or to leave on mom’s doorstep probably, can’t remember quite what the rules are anymore, for Mother’s Day.
Darren A. Smith:
Okay, we’ll see as it’s two days to Mother’s Day, I better go and try and book one.
Andrew Grant:
Yeah, go and get yourself a Morrisons Mother’s Day cream tea, leave it on your mom’s step. Ring the bell, and step back two meters.
Darren A. Smith:
All right. Andrew, before we go, what’s the one takeaway you want us, the people that are listening, watching, to take from this?
Andrew Grant:
I think it’s going to be … every year is a tough year, last year’s been tough. In terms of the supermarket trade, it’s going to be as tough as it ever was, for different reasons.
Darren A. Smith:
Very true. All right, Andrew, Grocery Guru, thank you very much. We’ll talk with you again next week.
Andrew Grant:
Okay, take care.
Darren A. Smith:
Take care. Bye-bye.
Andrew Grant:
Bye …
