Morrisons has revealed its sales and profits fell last year even as it put prices up, blaming the slide on shoppers becoming “increasingly pessimistic” amid the rising cost of living, political uncertainty and higher costs.
The retailer, which lost its spot at the UK’s fourth largest supermarket to Aldi last year, said underlying profits fell 15% to £828m in the year ending 30 October, as sales at established stores decreased by 4.2%.
The fall in revenues came despite the fact consumers were paying more on average for each item, with annual food inflation across the sector hitting 13.3% last month, according to the British Retail Consortium.
After one-off costs and interest payments Morrisons made a £33m loss, narrowing from the £121m lost in the 39 weeks to October 2021 – the only comparable previous figure available.
The company paid out a net £219m in one-off costs, including £18m on store closures and £108m in writedowns on onerous contracts, mostly related to its buyout of the McColl’s convenience store chain.
Its chief executive, David Potts, said the volume of goods sold by Morrisons had slid back as prices had risen and “across the UK consumers were becoming increasingly pessimistic as they battled with things through the Covid pandemic, political uncertainty, cost of living price rises and interest rates”.
“It has clearly been a tough time when consumers have been making hard choices,” he said.
Morrisons’s sales figures are disappointing in comparison with its bigger rivals Tesco, Sainsbury’s and Aldi, all of which had strong growth last year as prices went up.
Potts said a £7bn debt-fuelled takeover by the US private equity firm Clayton Dubilier & Rice in 2021 had not hindered the retailer. He said last year was “one of transition”, adding: “We are combining well with CD&R to be more effective.”
The accounts filed on Thursday show the chief executive’s annual pay fell to £1.7m including pension contributions from £4.3m a year before.
Potts said Morrisons had been hit harder by cost price inflation because it packed and processed many of its own foods and so could not delay the impact by passing it on to suppliers – a tactic he said that gave rivals “a sort of membrane between them and cost prices”.
“As a vertically integrated retailer, we felt the impacts of last year’s racing inflation more immediately than our competitors and this did have an impact on our pricing position,” he said, adding that, when inflation reduced, Morrisons would also feel the benefit more quickly.
Potts said consumer pessimism had “abated for a while” over Christmas and during the men’s football World Cup, and that Morrisons had traded better than expected over that period.
Sales rose 2.5% in the three weeks to Christmas Day, with Potts crediting the fact the company had “turned up the gas” on cutting prices from November.
Morrisons said it expected underlying profits to rise in the year ahead as it was now “confident that improved trading momentum and our various cost-saving programmes” would “more than offset inflationary headwinds”.
Potts said the group was now cutting prices on hundreds of items that shoppers were most keen on, adding choice on its cheapest ranges and putting more staff hours into stores to improve service. However, he admitted that inflation was continuing to affect the business through commodity prices and labour costs.
The group said it was reducing costs by, for example, improving the operation of automated tills, cutting food waste, slimming down ranges and bringing in headsets for staff members so they could communicate with others.
Potts said the acquisition of McColl’s last year was an important part of the group’s future, with plans to convert 400 outlets to the Morrisons Daily format this year. Three new Morrisons supermarkets will also open.
