Key facts
- Morrisons reported a £629m pre-tax loss in its latest financial period.
- The supermarket's net debt stood at £7.5bn in the year to October, though it has since been reduced by 46%.
- Morrisons is considering selling £1bn worth of property to manage its debt.
- The company reduced its workforce by nearly 5,000 employees over the past year.
- Morrisons acquired the collapsed convenience chain McColl's for £190m in 2022 and plans to close 100 of its stores.
Morrisons, a supermarket chain once considered part of the UK's 'big four', is navigating a challenging period marked by significant debt and persistent losses. CEO Rami Batiéh, who took charge in November 2023, faces the task of revitalizing the company, which has been outpaced by competitors. Batiéh's strategy includes price cuts and enhanced loyalty engagement, but these efforts are hampered by external factors.
The grocer has attributed its financial struggles to 'Labour tax hikes' and weak consumer confidence, leading to repeated losses. A ransomware attack on its tech provider in 2024 further disrupted operations, causing food shortages across stores. Despite a recent 2.8% increase in sales, Morrisons reported a £629m pre-tax loss, continuing its search for profitability.
The company's substantial debt burden, which grew to £7.5bn following its £7bn takeover by private equity firm Clayton Dubilier & Rice (CD&R) in 2021, remains a primary concern. While Batiéh has reduced this debt by approximately 46% since his tenure began, managing it is his biggest challenge. Morrisons is exploring the sale of an additional £1bn worth of its property to help control its debt, having already divested significant portions of its real estate portfolio to investors like Blackstone and the Saudi sovereign wealth fund.
Retail analyst Catherine Shuttleworth described the turnaround as 'nothing but difficult,' suggesting that cost-cutting measures have reached their limit, impacting store standards and product availability. Morrisons' accounts also revealed a reduction of nearly 5,000 jobs over the past year, bringing its average monthly workforce to 96,232, a 5% year-on-year decrease. A spokesperson clarified that these job losses were primarily due to the closure of its newspaper delivery service, restructuring of its retail people team, and downsizing of its Rathbones bakery business, with no additional redundancies in stores.
Morrisons cited a significant write-down in the value of McColl's, the convenience chain it acquired for £190m in 2022, as a key factor in its pre-tax loss. The grocer plans to close 100 of the 1,100 McColl's stores, attributing this decision to 'significant cost increases' stemming from government policy. Despite these challenges, Morrisons aims to expand its presence in the convenience market, having opened 30 new 'Daily' stores with plans for hundreds more.
The supermarket is also grappling with increasing rent expenses, with lease liabilities rising to £2bn from £1.8bn the previous year and £1.2bn in 2022. Morrisons has lost market share to German discounters Aldi and Lidl, a competitive pressure that is expected to continue. Nicholas Found of Retail Economics acknowledged Morrisons' progress under Batiéh in areas like price and availability but noted the 'sheer pace and scale of the competition.' He suggested Morrisons could differentiate itself in the convenience sector and with its fresh food offerings, but acknowledged that continued losses and debt constrain investment needed to close the gap with rivals.
A Morrisons spokesperson stated the company has shown 'resilience' against external pressures like the cyber incident, inflation, and government cost increases, which they worked to offset. They added that debt and interest costs were reduced, and the underlying business performance was robust, generating healthy earnings and strong operating cashflow.