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MORRISONS RALLIES AS PRICE WAR LOOMS

HOPEFUL: Some grocery prices are falling, says Bollard

Friday June 6,2008

By Peter Cunliffe, Deputy City Editor

MORRISONS kept up the pressure on rivals yesterday with an industry-leading jump in sales, amid warnings of a new price war between the supermarkets.

Britain’s fourth-biggest grocery retailer conceded that conditions were challenging as shoppers coped with the impact of rising commodity and fuel costs and economic uncertainty.

Chief executive Marc Bolland, who is spearheading the group after the retirement this year of Sir Ken Morrison, admitted a long period of falling supermarket prices had been replaced by the return of inflation.

The impact of rising prices was highlighted in Morrisons’ trading update for the three months to May 4.

Like-for-like sales, the key figure monitored by City analysts and which exclude new stores, were up 7 per cent.

Including petrol from Morrisons’ forecourts, the increase was 10.8 per cent, reflecting the huge surge in prices at the pump during the past year.

Total supermarket sales were 8.6 per cent ahead, or 12.6 per cent when fuel is included.

The figures represent a slowdown from the 9.5 per cent growth the group achieved over Christmas when they were helped by an advertising campaign featuring celebrities, including Lulu and Denise van Outen, but were still ahead of its major rivals.

Bolland, who earlier this week announced price cuts on 2,000 items, said: “We have seen switching patterns from all of our three major competitors, Tesco, Asda and Sainsbury’s, to us and the good news is we see that all over the country.”

Despite the strong sales, Morrisons shares fell 7dp to 284fp on concerns that profits would be squeezed by rising commodity and fuel costs.

“We think the first signs of a major price spat are emerging and we are worrying about the gross margin picture for the food retail industry more than we have done at any time during this decade,” said stockbroker Oriel Securities.

Bolland said higher fuel and energy prices were pushing up packaging and distribution costs, while prices of goods including bread, milk and eggs had risen this year. However, he said some products were coming down in price, including flour, frozen poultry, wet fish, tea and home and leisure products.

Bolland ruled out a bid for the Somerfield group but said it would consider buying individual stores if they became available.

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