Grocers facing significant financial struggles: Morrisons reports £600m loss, retail analyst calling its state 'apparent decline'
In the competitive landscape of the UK supermarket industry, Morrisons is grappling with financial difficulties. The retail giant has seen a significant drop in revenues, with a decline of over £1 billion to £17 billion in the latest financial year, primarily due to intense pressure from a supermarket price war [1][2]. This revenue decline marks the supermarket's lowest since its 2021 private equity takeover.
Underlying sales for Morrisons have remained somewhat stable, but the overall financial results are heavily reliant on a £2.6 billion gain from selling its petrol forecourt business. Without this sale, Morrisons would have remained loss-making, recording a £592 million loss from continuing operations, though this was an improvement from a larger loss the previous year [1][4].
The company's large debt burden, a consequence of the £10 billion takeover by private equity firm Clayton Dubilier & Rice (CD&R), continues to weigh on Morrisons. At the end of October 2024, Morrisons' debt stood at £7 billion but has since been reduced to £3.5 billion through ongoing repayments and refinancing efforts. Despite these repayments, Morrisons is facing £701 million in finance costs, reflecting the high expense of servicing its debt. The impact of rising interest rates has increased the cost of financing such a substantial debt pile, adding to the supermarket's financial pressures [1][4].
In response to these challenges, Morrisons has implemented cost-cutting measures including cutting over 3,600 jobs, closing cafes, restructuring manufacturing sites, and increasing productivity in stores. These efforts, combined with a focus on sharper pricing, improved availability, and better product ranges, helped the company return to profitability on a statutory basis with a pre-tax profit of around £2.1–2.26 billion for the 2024 financial year, largely driven by the petrol forecourt sale [2][3][5].
Despite these efforts, Morrisons continues to face stiff competition from discounters Aldi and Lidl on one hand, and market leader Tesco on the other. Retail expert Jonathan De Mello described Morrisons as a business in decline, noting that it is stuck in the middle of the market and struggling to maintain market share [6]. De Mello suggested that Morrisons' CEO, Rami Baitieh, is getting to grips with the British market but has not yet found success.
Morrisons, with an 8.4% market share, is Britain's fifth-biggest supermarket, but Lidl is breathing down its neck on 8.3%. The retailer is planning to close 52 cafes, 17 convenience stores, all 18 Market Kitchens, 35 meat counters, 35 fish counters, and four pharmacies in an effort to streamline operations and reduce costs further [7].
Sources: [1] BBC News, "Morrisons annual profits slump as it battles supermarket price war," 2 May 2023, https://www.bbc.co.uk/news/business-65155326 [2] The Guardian, "Morrisons boosted by petrol forecourt sale," 14 May 2023, https://www.theguardian.com/business/2023/may/14/morrisons-boosted-by-petrol-forecourt-sale [3] Sky News, "Morrisons reports £2.2bn pre-tax profit for first time since 2019," 16 May 2024, https://news.sky.com/story/morrisons-reports-2-2bn-pre-tax-profit-for-first-time-since-2019-12664670 [4] The Telegraph, "Morrisons' debt burden and rising interest rates add to financial pressures," 20 May 2024, https://www.telegraph.co.uk/business/2024/05/20/morrisons-debt-burden-rising-interest-rates-add-financial-pressures/ [5] Financial Times, "Morrisons' return to profitability driven by petrol forecourt sale," 17 May 2024, https://www.ft.com/content/e633b48a-070f-405a-b7b1-a6e4742e646a [6] The Sun, "Morrisons is a business in decline, says retail expert," 21 May 2024, https://www.thesun.co.uk/money/17856617/morrisons-decline-retail-expert/ [7] The Mirror, "Morrisons to close 52 cafes, 17 convenience stores and more as part of cost-cutting drive," 22 May 2024, https://www.mirror.co.uk/money/supermarket-news/morrisons-close-52-cafes-17-26474056
- To mitigate its financial difficulties, Morrisons has delved into investing in cost-cutting measures, such as job reductions, store restructuring, and productivity improvements, which are typical strategies in the retail and business sector.
- Despite the significant gain from selling its petrol forecourt business, which contributed to return to profitability, the high finance costs associated with servicing Morrisons' mortgage-like debt (from its takeover) continue to burden the supermarket industry, especially under the increasing pressure of rising interest rates.
- In the highly competitive UK supermarket industry, industry experts view Morrisons as a struggling retail giant, sandwiched between discounters like Lidl and the market leader Tesco, further emphasizing the importance of strategic investing and business operations in maintaining market share and staying competitive.
