Price cuts help Morrisons to outshine rivals

Morrisons has delivered price cuts on 2,000 items this month to lure cash-strapped customers into stores, as it showed rivals a clean set of heels with barnstorming sales for the 13 weeks to 4 May.

The UK's fourth-biggest supermarket has introduced the price cuts on a broad range of products, which are in addition to ongoing promotions.

Morrisons' chief executive, Marc Bolland, said: "We have seen inflation coming through, but we have reinvested some of that inflation into price." He said that it was witnessing rising inflation on commodities, such as milk, bread and eggs, but said that some products, including fish, were registering deflationary prices. "Energy and some commodities will continue to drive inflation for the coming quarter," said Mr Bolland.

The Bradford-based grocer posted total sales, excluding fuel, up by 8.6 per cent, and like-for-likes increased by 7 per cent for the 13-week period. The figures represent a slight slowdown from its electrifying festive period, when Morrisons' like-for-likes jumped by 9.5 per cent over Christmas and January, but are still ahead of its rivals.

Mr Bolland stressed that Morrisons had delivered the sales growth over the period to 4 May, despite the grocer's celebrity-led TV advertising, starring Lulu and Alan Hansen, over theperiod not matching levels in the second half of last year. However, Mr Bolland acknowledged that the trading environment was "uncertain" and that consumer confidence was at an 18-year low.

Tim Attenborough, an analyst at Exane BNP Paribas, said: "They are an absolutely rock solid set of numbers for Morrisons." He said that Morrisons' average shopping basket size and footfall numbers were up over the period, which indicates that its growth is not just driven by customers seeking promotion-led bargains.

Another positive is that Morrisons will be up against weak comparables for the next few months because its sales slowed over the soggy summer last year, which will make it easier for it to deliver like-for-like sales growth.

However, the Oriel Securities analyst Jonathan Pritchard said inflation on its input costs will cause its gross margins to come under pressure. "While the price increases in items such as milk, eggs and bread can be passed straight through to the customer, it is difficult to do so on other products, and the company has had to take some of the commodity rises on the chin."

He added: "We think that the first signs of a major price spat are emerging and worry about the gross margin picture for the food retail industry more than we have done at any time during this decade."

Mr Bolland said that Morrisons would look at individual stores of the 900-store local grocery chain Somerfield if Co-operative Group, which is trying to acquire Somerfield, decides to offload a number of stores.

"If there are stores available at the end of the process that are the right size and in the right location, we will look at them," Mr Bolland added.