Christmas is generally the most successful period for retailers in the food and drinks industry, with many chains racking up as much as 40 per cent of their annual profits in only a few weeks. However, this makes competition tough, especially among Britain’s “Big Four” supermarkets as promotions and sales offers flood the market in a bid to draw consumers away from rivals.
Unfortunately, thanks to the uncertain economic situation at present, many consumers reined in their spending and focused on making savings. In fact, a larger number than ever chose to simply avoid the lure of in store offers altogether and stick to a strict list by shopping online this year – a distinct disadvantage for the fourth largest UK brand, Morrisons, which has yet to launch a web-based store.
Although the chain has a commercial property portfolio comprising of 455 supermarkets in the UK and employs over 130,000 staff, it has failed to follow its main competitors by moving online. While this is expected to occur sometime this year, there are fears that Morrisons has simply fallen too far behind to get its footing in the area of food-based web retailing which is becoming more and more popular on a monthly basis.
In the six weeks to the 30th December 2012, the company recorded a 2.5 per cent drop in like for like sales, continuing the poor run of a 2.3 per cent drop in the previous quarter. Sales were “lower than anticipated” yet, despite this, Morrisons is confident that it will be able to meet full year profit forecasts.
A spokesperson for the chain said; “The environment over the Christmas period has continued to be challenging with hard-pressed consumers increasingly shopping to a budget and vouchering a prominent feature of a highly promotional market.”
Meanwhile, chief executive Dalton Philips refused to confirm or deny that profit forecasts will have to be downgraded as a result of the poor Christmas trading period, instead choosing to remain optimistic about the future. He focused on a new advertising campaign due to be launched by Morrisons later this year, which will feature popular television presenters Ant & Dec.
He said; “In a difficult market our sales performance was lower than anticipated, but we have a strong business and significant opportunities to advance our strategy.”
The big winner in the annual Christmas supermarket battle is expected to be Sainsbury’s, which analysts predict will release a like for like sales boost of 1 per cent. However, footfall will have increased hugely in store and on the company’s website as a record £110 million was saved by customers in the run up to Christmas by using the Nectar Points scheme.
Yet overall Christmas 2012 proved to be disappointing for the majority of retailers, as the much hoped for boost in consumer confidence failed to materialise. Compared to December 2011, overall spending dropped by 1.7 per cent – surprising when the fact that the recession ended between the two Christmas seasons is taken into account.
Even online sales failed to pick up on the total spending of 2011, although certain days in the Christmas shopping period managed to break records set in preceding years. All in all, online spending dropped by 0.4 per cent in the period, only partially alleviated by a last minute rush of spending in the days before Christmas as sales shoppers began to bite.
Markit chief economist Chris Williamson warns a number of factors are ensuring that this dismal state is set to continue for some time yet, putting further pressure on the high street retailers of the UK.
He says; “Consumer spending remained disappointingly weak in December.
“With inflation continuing to outstrip pay growth, and worries persisting about job security and the economic outlook, consumer spending looks likely to remain under pressure for some time.”
It appears, then, that while Morrisons is certainly not alone in suffering a disappointing Christmas, it could end up being one of the hardest hit by a poor season in the months to come. And with consumer confidence remaining low, the question is whether chief executive Dalton Philips can turn the situation around before budget brands Lidl and Aldi start vying for the chain’s fourth place in the UK supermarket table.
Do you think a poor Christmas trading period can destabilise a retailer’s position over the following year, or is it simply a sign to the management that changes must be made? Will Morrisons be able to compete against its main rivals when its online business is launched, or has it fallen too far behind to be able to catch up now?
