Morrisons profit drop sparks next moves in retail price war

Morrisons made a £176m loss in the year to 2 February, compared with a £879m profit in the previous year.

Underlying profit before tax fell 13% to £785m and is forecast to halve for the year to February 2015.

See also Morrisons slashes two-litre milk price to 84p

The retailer has vowed to take on discounters Aldi and Lidl with a cash-raising and price-cutting strategy, which will see it exiting “non-core” areas and reducing the number of manufactured goods it offers in certain product types.

However, Morrisons would remain the biggest direct purchaser from British farming, through its abattoirs, bakery operations and fresh produce packing businesses, said a spokesman.

Savings of £8bn over three years would also be achieved through running a smarter business, which involved cutting operating costs and using new technology.

“We will find extra resources from our own business to make sure our prices and offers are as sharp as possible,” said the spokesman.

This latest round in the retail battle has sparked further producer concerns about the effect it will have on farmgate prices. That would depend on the customers’ willingness to buy British produce, said Morrisons agriculture manager Andrew Loftus. “That is stable or increasing,” he said. “If it remains robust, I don’t think farmers have got too much to worry about, other than the normal things.”

The retailer’s preliminary results announced today (13 March) show a 2% drop in turnover to £17.7bn and were issued along with a warning that underlying profits are likely to halve in the year to 2 February 2015.

The group will sell off £1bn worth of property over the next three years and will exit from Kiddicare, its baby equipment, food and children’s’ clothing business. It will also withdraw from US online grocery business Fresh Direct.

“The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail,” said chief executive Dalton Philips.

“Together with the strategic value of our vertically integrated supply chain, these measures will provide a firm foundation from which to provide outstanding value to our customers and to generate meaningful shareholder returns over the medium-term.

“I’m confident Morrisons will emerge from this period of necessary change as a more focused, more distinctive value leader and well positioned to compete sustainably in the new grocery landscape.”