Wm Morrison Supermarkets Plc - Case Study Example

Wm Morrison Supermarkets PLC Introduction Wm Morrison Supermarkets PLC is the fourth largest chain of supermarkets in the United Kingdom. The branded name of the company is Morrisons, and it is part of the FTSE 100 Index of companies. The company is one among the major four supermarkets and has a share of 11.4% as in Janyuary 2008. 'The Group's brand products extends from flowers and fresh produce to kitchen-ware and candles, from greetings cards and cushions to ink cartridges and ice cream. Product brands are The Best, Eat Smart, Bettabuy, Organic, Freefrom, At Home, First Home and Complexions. The Group operates 375 stores spread across the United Kingdom. The Group operates in the United Kingdom, the Netherlands and the Isle of Man.' Wm Morrison Supermarkets PLC - Company Profile Snapshot, (http://wrightreports.ecnext.com/ coms2/ reportdesc_ COMPANY_C826N2770, viewed on 24th March, 2009) The company was founded in the year 1899 by William Morrison. The Headquarters was at Bradford inWest Yorkshire. The company initiated its expansion by the takeover of another company viz., Safeway in the year 2004. Thereafter the company registered commendable growth and at present it has a total of 382 superstores across the UK. The Morrison family currently owns around 15.5% of the company. Morrisons has now a remarkable stronghold in the supermarket chain and has earned good profits through the years and has given good divident to its shareholderes. The adoption and implementation of effective marketing strategies with the support of latest technologies have helped the company in the flawless management of inventory, logistics and warehousing. Here, in this essay the Technological, financial and marketing techniques implemented by Morrisons for its success is being discussed.. Executive Summary (www.morrisons .co.uk) Wm Morrison Supermarkets LLC (Morrison) one of U.K.'s largest food retailers and has its area of operation related to retail supermarket stores and connected actions. The varied range of products which Wm Morrison has to offer include fresh foods, home and leisure products, wines and spirits, groceries and beers, through its 365 stores, 13 manufacturing sites and 12 distribution centers in the whole of U.K. The different branded products of the company are; Eat Smart, Organic, free from, At Home, First Home, BettaBuy, skin colour products and private label products. The market share of the Morrisons gained and it extended beyond its rivals. Consumers became more and more health and budget-conscious and they started preferring necessities to improvised spending. GBP 655 million was the profit before taxation for the year. This is an increase of around GBP 43 million over the previous year profits. But the net income for the equity share holders reduced by 17% and the earnings per share also dropped down. The yearly turnover for fiscal 2009 is higher by 12% and 3% of this growth is because of its very high prices of fuel. The growth in the existing stores were 7.9%, increase in customer numbers by 4.2% and average basket used up by3.6%. Wm Morrison Supermarkets Plc branded advanced profit before tax in fiscal 2009, after it wheedled consumers with freshened and rebranded stores. The supermarket chain also increased its dividends and also announced that it was going to open up more stores across U.K. Morrisons has raised 601,212 in aid of Help the Aged and Childline. They have been able to do this by: Selling pin badges in store Charity of the Year Collections (more coming in December!) Donations from reusable charity carrier bags Stop for Tea parties nationwide Recycling mobile phones History of the Company Morrisons started their business as as an egg and butter merchant in Rawson Market of Bradford under the name of Wm Morrison (Provisions) Limited. In 1952, his son, Ken Morrison took over the company while he was only 26 years old. In 1958 it opened a small self-service store in Bradford. This store was the first shop of its kind in Bradford delivering poducts with a price label on them. After 3 years, i.e, in 1961 the company began its first supermarket known as "Victoria", in the Girlington district of Bradford. This supermarket had 5,000 sq ft of selling space and car parking spaces for the customers.. Morrisons, Company History,(http://www.morrisons.co.uk/Corporate/About-Morrisons/Company-history1/, viewed on 23rd March, 2009) In the year 1967 it was registered as a public limited company listed on the London Stock Exchange as Wm Morrison Supermarkets PLC. More than 80,000 investors had applied to purchase shares. This put more confidence in the management and later on in the year 1971, Morrisons new head office was set up at Hilmore House. By 1975, Morrisons were operating 12 stores. They acquired Whelan's Discount Stores and stepped into Lancashire region for the first time with their stores. Analysis of the growth of the company: The company followed a new business strategy by building huge identical stores, in Yorkshire and other places. This produced a large sales turnover in the 1980s. By the end of the decade Morrisons owned 46 stores. Each store adopted a style of its own and was decorated identically so as to resemble a Victorian High Street. Along with this the company introduced "More reasons to shop at Morrisons" slogan with the yellow and black logo. In 1986 the company grew to have its market share of 1.4%.The 100th store opened in Nelson in the company's centenary year by Sir Ken Morrison. 'According to CACI, as of 2006, Morrison's has market dominance in 10 postcode areas; SY (Shrewsbury), LD (Llandrindod Wells), WS (Walsall), TS (Cleveland), TD (Hawick), BD (Bradford), HG (Harrogate), LS (Leeds), WF (Wakefield) and HD (Huddersfield)'. Wm Morrison Supermarkets, http://en.wikipedia.org/wiki/Morrisons, viewed on 23rd March, 2009. Morrisons earned a 35-year track record and rapid growth by 2004. The company joined the FTSE100 in 2001. The purchase of Safeway made the company possess around 40% of the shares of Safeway. Morrisons has been gaining even though the competition in the market is severe. The company has a clear edge over its rivals over the past year, as health and budget-oriented consumers restricted themselves from wanton spending and preferred to shop only for basic things for living. "Retail market research firm TNS also reported last week in its latest survey that Morrisons' share of supermarket sales had increased to 11.6 per cent over the past three months, up from 11.1 per cent the previous year. Analysts predict that this week's figures will be equally impressive, with Citigroup forecasting full-year profits of 565m, almost half more than the previous year." Tim Webb, The Observer, 9th March 2008, 'Morrisons bids for big time after family bows out', http://www. guardian.co.uk/business/2008/mar/09/morrisons.supermarkets, viewed on 24th Marach 2009. The strategy developed by the company is paying off. The company exhibited tremendous progress on their long term plans. They have opened eight new stores at Johnstone, Speke, York etc., and did extensions for 13 retail spaces and 18 extensions of warehousing spaces considering great volumes of products handled in these stores. During the fiscal 2009, Morrison Supermarkets PLC exhibited the highest profit share. 'Turnover grew by 4.1% to 13.0bn, a 6.0% increase after adjusting for the effect of a 53 week year in 2006/07. Like for like store sales increased by 4.6% with both customer numbers and average basket spend increasing.' Morrisons, Operating review of the year, (http://www.morrisons.co.uk/ Corporate/2008/ annualreport/ operating_review/ review.html, viewed on 24th March, 2009). According to Talking Retail, "Supermarket chain Morrisons has reported like-for-like sales growth of 7.9% for the year ended 1 February 2009. The figure, which excludes fuel sales, compares with 4.6% growth in the year 2007-2008. Turnover was up 12% to 14.5bn, from 13.0bn last year. Profit before tax was 655m, up from 612m. Talking Retail, 12th March, 2009,'Morrisons grows sales as it widens appeal' (http://www.talkingretail.com/news/industry-news/12314-morrisons-grows-sales-as-it-widens-appeal.html, viewed on 24th March, 2009.) "Morrisons said it was attracting 550,000 more customers a week, reflecting its broadening appeal. Its programme to freshen up the stores and brand had now been completed. Nine new stores were opened during the year, as well as 90,000sq ft of sales extensions. The group also said that, because of its acquisition of several Co-op and Somerfield stores, it was on course to exceed by 500,000sq ft its target of adding 1m sq ft of new store space by January 2010. Talking Retail, 12th March, 2009,'Morrisons grows sales as it widens appeal' (http://www.talkingretail.com/news/industry-news/12314-morrisons-grows-sales-as-it-widens-appeal.html, viewed on 24th March, 2009) According to Thomson Financial, "William Morrison Supermarkets PLC's share of the UK grocery market has hit its highest level to date, according to the latest data released by industry watcher TNS World panel. Britain's fourth biggest supermarket chain increased its market share to 11.6 pct in the three months to Feb 25, compared with its share of 11.5 pct in the 3 months to end Jan, and 11.1 pct in the same period the previous year. The data showed Morrison achieving a repeat of the 11 pct growth it saw in the last period, driven by increasing shopper numbers. The retailer has benefited from store refurbishments and an effective advertising and promotional campaign featuring the likes of Lulu and Alan Hanson. TNS World panel said the overall market continued to advance strongly although some of the growth can be attributed to food price inflation. Tesco would appear to have been hit by Morrison's resurgence, seeing its market share dip to 30.9 pct from 31.3 pct in the same period last year and 31.5% in the three months to end Jan." Thomson Financial News, Morrison's share of UK grocery market at record level - TNS World panel, ADVFN, (http://www.advfn.com/lse/ShareNews.asp sharenews=MRW&article=25089750&headline=morrisons-share-of-uk-grocery-market-at-record-level-tns-worldpanel, viewed on 24th March, 2009). "We expect to open around 350,000sq sq ft of new retail space in the coming year, on top of approximately 500,000sq ft that we have agreed to acquire from the Co-operative Group, reflecting our confidence in the attractions of Morrisons core grocery business.", Morrison's spokesman said.. Talking Retail, 12th March, 2009,'Morrisons grows sales as it widens appeal" (http://www.talkingretail.com/news/industry-news/12314-morrisons-grows-sales-as-it-widens-appeal.html, viewed on 24th March, 2009) Chief executive Marc Bolland said: "Our focus on fresh food and value appeals to shoppers everywhere and provides a strong platform to take Morrisons from national to nationwide." Talking Retail, 12th March, 2009,'Morrisons grows sales as it widens appeal' (http://www.talkingretail.com/news/industry-news/12314-morrisons-grows-sales-as-it-widens-appeal.html, viewed on 24th March, 2009) Credit Suisse analysts have said in a note: "We think Morrisons still has considerable UK growth opportunity ahead and is ideally competitively placed in today's tough trading environment as a value/ food retailer." Istock analyst, March 9, 2009, 'Updates Will Put Retail Sector Back in Spotlight ; Morrisons' Market Share Swelling Thanks to Success of Three-Year Turnaround Initiative,(http://www.istockanalyst.com/ article/viewiStockNews/articleid/3101576, viewed on 24th March, 2009). In 2009 (Till February last), Morrisons which was 4th last year, has sold more and made more profit than any other of the top 4, and is ranked 3rd now. Morrisons has a distribution network comprising of in-house and third party contractors., mainly HL Exel Supply Chain. They have regional distribution centres and depots all over UK A new centre was opened in Swindon in 2007, followed by another in Mar 2008. Yet one more is in progress in Kent. Wm. Morrison Supermarkets plc is seeking to buy sites in central and north east Scotland so as to grow amid financial crisis. 'The company said it has identified more than 100 potential new sites across the UK as it seeks to break further out of its northern England heartland'. Wm. Morrison Supermarkets plc. (MRW:London Stock Exchange), March 24, 2009, http://investing.businessweek.com/research/stocks/snapshot/snapshot.aspric=MRW.L, viewed on 24th March, 2009) Wm Morrison Produce Ltd delivers through their temperature controlld sales outlets, plants and flowers, fruits and vegetables supplied by Bos Brothers Fruit and Vegetables BV, a sister concern of Morrisons itself. Additionally they have the facilities of Gerber Foods site in Bridgewater. "It operates 365 stores, 13 manufacturing sites and 12 distribution centers in the U.K. The company offers a range of branded label products, includes The Best; Eat Smart, BettaBuy, Organic, free from, At Home, First Home, and Complexions and private label products". (Bharath Book Bureau, Wm Morrison Supermarkets PLC Financial and Strategic Analysis Review, February 2009, http://www.bharatbook.com/Market-Research-Reports/Wm-Morrison-Supermarkets-PLC-Financial-and-Strategic-Analysis-Review.html, viewed on 24th March, 2009). Market forecast (2005-2010) In Britain the supermarkets grab 75% of sales when traditional sales outlets take only 25%. As such convenience markets are on the rise whereas the traditional retailers are retreating. Now the UK market is controlled by Supermarkets and Convenience stores. The competition in this field has caused a low profit margin which thwarts the progress of the industry. To overcome this, the retailers are now straining to find out new areas of product and process, to keep their roots in the market. "Our research has concluded that the implementation of the information technology has helped the Supermarkets in efficient management of inventory, logistics and warehousing thus bringing the overall costs down. Changing socioeconomic trends and consumer behavior has been the key industry driver and thisresearch sees a major role played by socio economic patterns in shaping the future of the industry". Research and Markets, Guinness Centre, Taylors Lane, Dublin 8, Ireland. UK Food Retailing Market Forecast (2005-2010), http://www.researchandmarkets.com/ reports/ 342766/ 342766.htm, viewed on 24th March, 2009 Wm Morrison Supermarkets plc. Checks Out Irisys Technology InfraRed Integrated Systems Ltd. (Irisys) and Wm Morrison Supermarkets plc, jointly formulated strategy to implement their management technology in 300 stores in UK. The merits of the system was that it could give superb checkout experience and innovated staff deployment in the sales outlets of Morrisons. "The investment in the latest technology is part of our strategy to continue to be not only a leader in terms of value for money, but also in the delivery of exceptional service and real benefits to our customers. Ensuring our customers receive the best possible service at the checkouts is one of the most important elements of the shopping experience, but also one of the biggest challenges," said Sylvia Jones, Head of Retail Operations for Wm Morrison. "By investing in this innovative solution from Irisys we aim to deliver real benefits to all our customers in as cost-effective a manner as possible." Wm Morrison Supermarkets plc. Checks Out Irisys Technology, Industry News, (http://www.industrial-embedded.com/news/Industry +News/13605, viewed on 24th March, 2009). Morrisons in News 1. Morrison's customer sensitive approach Wm Morrison Supermarkets has recalled all its cans of own-brand Chunky Vegetable Curry (410g), because the product contains wheat gluten, celery and mustard, which are not mentioned on the label. Therefore, this product is a possible risk to people who are allergic or intolerant to gluten, celery or mustard. The Agency has issued an allergy alert advising anyone with an allergy or intolerance to gluten (wheat), celery or mustard not to eat this product. Food Standards Agency, 'Morrisons recalls Chunky Vegetable Curry', 17th March, 2009, ( http://www.food.gov.uk/news/newsarchive/ 2009/mar/curry, viewed on 24th March, 2009). 2. Morrisons is recession winner as profits jump Morrisons has emerged as a clear winner from recession Britain, as the supermarket chain raised profits and increased its dividend,. They have attracted more than half a million new customers a week Amy Wilson, Morrisons is recession winner as profits jump, Telegraph.co.uk 12th March 2009, Web Article, (http://www.telegraph.co.uk/ finance/ newsbysector /retailandconsumer/4977406 /Morrisons-is-recession-winner-as-profits-jump.html, viewed on 23rd March, 2009). 3. Morrisons success invites caution MORRISONS will struggle to increase its market share as competition intensifies this year, analysts yesterday warned, after the supermarket giant unwrapped the biggest sales rise among Britain's top four grocers. Sales at shops open at least a year, excluding fuel, leapt 8.2 per cent in the six weeks to 4 January, Morrisons said. The figure was towards the top end of City forecasts and compares with festive sales hikes of 2.5 per cent and 4.5 per cent at market leader Tesco and number three player Sainsbury's, respectively. Scott Reid, News.scotsman.com, 21st January, 2009, 'Morrisons 'Christmas winner' but cautious on outlook for 2009', (http://news.scotsman.com/ supermarkets/Morrisons-39Christmas-winner39-but-cautious.4906270.jp, viewed on 24th March, 2009) 4. Morrisons March in March Hargreaves Lansdown says investment outlook on Wm Morrison will remain neutral despite strong results. Wm Morrison (LON:MRW), the UK supermarket chain, has announced a profit before taxation for the year amounted to GBP 655 million, an increase from GBP 612 million reported in the previous year. Morrisons has been gaining market share from its bigger rivals over the past year, as health and budget-conscious consumers restrained from improvised spending and prefer to shop for necessities. Stockbrokers Hargreaves Lansdown has however placed the company on a neutral investment rating citing the intense competition the company is set to face in the coming months. The company is trading at 1.73% higher over yesterdays close.EN economy news, Markets, FTSE and Global Market newsd & insight, 12th March, 2009, (http://www.economy-news.co.uk/wm-morrison-1203.html, viewed on 24th March, 2009-03-24). 5. Budget shoppers flock to Morrisons Supermarket chain Morrisons has announced a seven per cent rise in full-year earnings after getting "in tune" with the budget shopper's mindset. Morrisons unveiled annual pre-tax profits of 655 million on Thursday, while like-for-like sales excluding petrol rose 7.9 per cent compared to last year. The chain, which operates 375 stores across the UK, attributed the success to the appeal of its cheaper food ranges.viewLondon.co.uk., Budget shoppers flock to Morrisons, 24th March, 2009, (http://www.viewlondon.co.uk/news/budget-shoppers-flock-to-morrisons-19070769.html, viewed on 24th March, 2009) 3. Analysis of strategic issues Issue 1: Morrison's market share decreased after its purchase of Safeway, a leading British supermarket chain which owned 479 stores. Analysis The acquisition quickly ran into difficulties due to the change in their accounting systems just six weeks before the transaction was completed. The result was a series of poor financial results and a need to revert to manual systems. Action The acquisition of Safeway by Morrisons was the largest of its kind in British retail history. The company focused on replacing Safeway carrier bags gradually with those of Morrisons, focusing initially on the retained stores which were freehold. Alongwith this the company increased the shop area to over 25,000sqft with adequate car parking facilities for attracting customers. Shortly after the acquisition Morrison's brand products appeared in Safeway stores. The strategy had a far sighted effect and it boosted the sales of Morrisons. current global economic conditions share values and future investment: Stock Data: Current Price (3/20/2009): 243.50p(Figures in Pounds Sterling) Recent Stock Performance: 1 Week -3.4% 13 Weeks -9.1% 4 Weeks -11.6% 52 Weeks -13.0% Wm Morrison Supermarkets PLC Key Data: Ticker: MRW Country: united kingdom Exchanges: LON Major Industry: Retailers Sub Industry: Variety Store Chains 2009 Sales 14,528,000,000 (Year Ending Jan 2010). Employees: 83,736 Currency: Pounds Sterling Market Cap: 6,403,601,960 Fiscal Yr Ends: January Shares Outstanding: 2,629,816,000 Share Type: Ordinary Closely Held Shares: 523,045,922 The globalisation of markets along with the greater foreign competition plus the cutback of entry barriers, it has become all the more crucial to target a company's financial index numbers against other firms on a worldwide foundation. Globalization. World stock markets have of late found a come back to basic financial analysis. Hype in management is opposed to sound management will generate shareholder value in the longer period. This philosophy gives greater stress on financial fundamentals and benchmarking. Benchmarking should not be taken in a conventional sense, but benchmarking at the global level. This is because markets have become more international and firms produce transnational and global strategies. Most vertical studies centre on benchmarking as opposed to domestic ratios, which are often available in government agencies or commercial sources. Examples of such reports are Value Line, Dun and Bradstreet, and Standard & Poor's. These analysis are the ones which are most commonly carried on by prospective investors, creditors, chief financial lenders and officers, and of course by the corporation's strategic management team. According to (Skim and Siegel, p 42-43) financial statement analysis and ratios describe common-size statement (vertical analysis) as follows: "A common-size statement is one that shows each item in percentage terms. Preparation of common-size statements is known as vertical analysis, in which a material financial statement item is used as a base value and all other accounts on the financial statement are compared to it. In the balance sheet, for example, total assets equal 100 percent, and each individual asset is stated as a percentage of total assets. Similarly, total liabilities and stockholders' equity are assigned a value of 100 percent and each liability or equity account is then stated as a percentage of total liabilities and stockholders' equity, respectively. For the income statement, a value of 100 percent is assigned to net sales, and all other revenues and expense accounts are related to it. It is possible to see at a glance how each dollar of sales is distributed among various costs, expenses, and profits. The authors suggest that vertical analyses involve industry-based comparisons. Such a comparison "allows you to answer the question, 'How does a business fare in the industry' You must compare the company's ratios to industry norms." (p. 43-44) LIMITATIONS AND EXTENSIONS Shim and Siegal (p. 60) stress that "while ratio analysis is an effective tool for assessing a company's financial condition, its limitations must be recognized." In particular, they find that (p. 59) "no single ratio or group of ratios is adequate for assessing all aspects of a company's financial condition." The following limitations associated with ratio analyses which apply to the global benchmarking and vertical analysis (p.60) are: Accounting standards or policies may limit useful comparisons across companies Management accounting practices across companies and countries may not be performed in the same style Ratios are static and do not reveal future trends Ratios do not indicate the quality of the components used to calculate the ratios (i.e. ratios have ambiguous interpretations) Reported ratios may not reflect real values Companies may be highly diversified, limiting the comparability of their ratios to others Industry averages or norms are approximate; finer industry definitions may be required for certain interpretations or comparisons Financial statements and resulting ratios often mean different things to different people depending on their points of view or motivations. 5. Conclusion Wm Morrison Supermarkets LLC (Morrison) is one of the 4 major food retailers in U.K.. It has 375 stores and 13 manufacturing locations. It maintains 12 distribution centres all over Britain. The company offers a wide range of branded label products like The Best; Eat Smart, BettaBuy, Organic, free from, At Home, First Home, and Complexions and private label products. Additionally, it delivers several items such as fresh foods, groceries, home and leisure products, beers, wines and spirits. The company is booming and gains a market share from its competitors. The main reasons for its runaway success are its customer friendly attitude, adoption of latest technologies and management strategies. It has got the higher pre-tax profit in fiscal 2009. And in par the company has raised the dividend of the shareholders. Morrison Supermarkets PLC has become the most profitable and customer service oriented supermarket chain in UK. Their strategies involved in acquisition of other non profitable supermarkets and make them profitable in a shot span of time. They adopt the latest technology in their shops to decrease the cost and increase the profit. It uses the most modern Infra red based check out system and applies information technology to support effective management of inventory, logistics and warehousing. Thus they have got unquestionable approach to lessen the overall running costs, which acconts for its profit and at the same time invite budget oriented shoppers in the present alarming global slowing down economic environment. The customers of Morrisons are increasing year after year. The service and accountability of the company, their quality based fresh and innovative products together with the cutomer oriented interaction, their wise and logic planning, risk tolerance and risk avoidance, and precautions are the key factors for the tremendous success of Morrisons. Recommendations Wm Morrison Supermarkets PLC is now the 3rd market leader in the supermarket chains in U.K. The company is known for its quality oriented fresh food items. As such the company must focus more and more on the quality part in future also but at the same time maintain a competitive price to each product so that budget oriented customeers shall flock in their supermarkets and other sales outlets. The key to success of every company depends upon cost minimising. So the company has be more vigil to avoid unwanted expenses. Additionally the company shall adhere to the application of innovative and customer friendly technological upgradations for delivery of good service. The company should review the 'optimisation plan' implemented in 2007 on the basis of the current success level, rather than acquisition of other retailing companies. 6. References: 1. www.morrisons.co.uk/Documents/InterimReport0506 retrieved on 2009-03-20. 2. The Telegraph (analysis of Morrisons by JPMorgan) retrieved on 2009-03-20. 3. business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5892890.ece - retrieved on 2009-03-21. 4. UK Food Retailing Market Forecast (2005-2010)retrieved on 2009-03-20. 5. production.investis.com/safewayplc/merger retrieved on 2009-03-20. 6. www.highbeam.com/doc/1G1-111810184.html retrieved on 2009-03-20. 7. www.oft.gov.uk/shared_oft/mergers_ea02/361227/Tesco2.pdf retrieved on 2009-03-20. 8. www.h-l.co.uk/shares/security_news/articles/2656382rq=article&sedol=0604316 retrieved on 2009-03-19. 9. www.irisys.co.uk retrieved on 2009-03-20. 10. www.theherald.co.uk retrieved on 2009-03-21. 11. Jae K. Shim and Joel G. Siegel, 2009, Financial Managemen Read More