Morrisons

INTRODUCTION

Wm Morrison Supermarkets plc is one of the “Big 4” in the supermarket chains of united kingdom. The company is usually referred to as Morrisons and is part of the FTSE 100 of companies .Here efforts would be made to understand the environment that Morrisons operates in and what are the major issues that concern it. Also it would be tried to suggest what strategic management accounting could prove useful for the company.

Founded by William Morrison in 1899, initially as an egg and butter merchant in Bradford, England, morrisons has come a long way from being just “a stall” to become on of the biggest success stories of modern united kingdom.. The company has about 360 stores giving employment to 13000 people working in stores, factories, distribution centers and offices. An estimated 9 million customers visit morrisons every weak.. Although morrisons became a public company in 1967, morrison family has been quite active in its running over the years. Sir ken morrison, son of William morrison is the executive chairman of the company with morrison family owning 18% of the company.[1]

RECENT PERFORMANCE

‘safeway’ or the ‘unsafe’ way

Ever since morrisons acquired Safeway in march 2004, sailing hasn’t been so smooth for the company. It posted a full-year loss for the first time in its 107 year history, an estimated pre-tax figure of GBP313 million. Costs arising from the Ј3 billion Safeway deal, notably converting 220 stores and writing off goodwill, were Ј374.4 million. Goodwill alone involved a Ј103.2 million write off. The result was a full-year loss of Ј312.9 million which has prompted the group to reveal a three-year recovery plan to cut costs and boost margins[2]. Acquisition deal was rightfully termed “indigestive” by sir ken, when morrisons eventually had to sell over 200 Safeway compact stores to rivals Sommerfield, asda, tesco and sainsbury[3]. Although morrisons say that the sales were either due to stipulations by the Competition Commission, or to size and location, but some analysts believe that the conversion of all the stores would have proved impossible for morrisons and it would just have made things even worse for the company. As if these problems weren’t enough on their own, morrisons had to face union strike threat caused from row over new contracts last year. Shareholder pressure to improve corporate governance and having to withdraw products from the market due to health reasons are some of the other issues that confronted morrisons recently.[4]

But morrisons are determined to stand still in these tough times. Morrison announced a three year "optimisation plan" that it said would add 90 basis points to the gross margin. The plan is hoped to bring up to 470 million pounds in total savings from staff cuts, revamps in the distribution chain and at head office. For the year ended 29 January 2006, total turnover was estimated at Ј12.1 billion, overall sales were up by 2.8%. Net debt was reduced to Ј1.15 billion. A proposed was dividend of 3.075p was announced maintaining total dividend at 3.7p . overall sales this year for the first seven weeks are up 3.2% . Currently shares are trading 190p compared with tesco 330p and sainsbury 332p.The stock is trading on a 2006/07 forecast price/earnings ratio of 29.8, compared with 15.3 for Tesco and 24.5 for Sainsbury.[5]

External environment

The UK supermarket sector is dominated by Tesco, ASDA, Sainsbury and Morrisons which are the only chains which operate full-scale superstores of 40,000 square feet (3,700 mІ) or more. They are all fully national; there are no regional supermarket chains left in the UK which operate superstores, just a few small ones which operate smaller stores. The "Big 4" have a combined share of almost 75% of the UK grocery market, with tesco being the biggest player having a share of 31%. Asda, sainsbury and morrisons follow with 17, 16 and 11 % share of the market, respectively.[7]

The uk supermarket sector could be analysed using Porter’s 5 forces analysis. The 5 forces analysis complement other evaluation techniques like SWOT analysis. Four forces -- the bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products -- combine with other variables to influence a fifth force, the level of competition in an industry.

Threats of new entrants - All the “Big 4” enjoy economies of scale. Capital requirements for the supermarket sector are literally huge, so the new entrant would have to be at least financially as good as the present players, if not better. All the ‘Big 4’ compete