Clever marketing looks to have helped Morrisons

Jan 19 2009 by Peter McCusker, The Journal

THE UK’s slide into recession will be confirmed on Friday and further trading updates from the beleaguered retail sector will be closely monitored this week.

Morrisons’ trading figures on Thursday will be watched with interest amid signs it was one of the Christmas winners in the supermarket sector.

The latest industry data showed Morrisons notched up its highest-ever market share in the 12 weeks to December 28. TNS Worldpanel said Morrisons’ share leapt to 11.9% – adding to the pressure on market leader Tesco.

Sainsbury’s has already smashed the sales figures of Tesco, with a 4.5% rise in UK like-for-like sales versus a 2.5% increase by its bigger rival.

And the UK’s largest supermarket chain is set to be left trailing behind again by Morrisons when the group reports, with predictions that comparable sales may rise around 8%, excluding petrol, according to Citi analysts.

The firm revealed an 8.1% hike in third quarter sales before Christmas thanks to its value proposition and cut-price deals.

Experts believe this will have been maintained, with help from TV marketing campaigns.

It also ran a promotion over the period offering customers £20 cashback if they spent £40 a week for four weeks, which is also likely to have appealed to cost-conscious shoppers.

Justin Scarborough, analyst at Royal Bank of Scotland, said: “Morrisons is delivering on all fronts, with strong sales enhanced by sharp promos and clever marketing.”

The UK recession is expected to be made official on Friday when output figures for the fourth quarter of 2008 are released.

The contraction in Britain’s economy for the final three months of the year follows a 0.6% decline in GDP for the third quarter – a ‘technical’ recession as defined by two successive quarters of negative output.

Official retail sales figures for December on Friday are expected to show trading contracted sharply as cash-strapped consumers curtailed Christmas spending.

The Office for National Statistics numbers are likely to add to the grim image of the UK economy.

Sales in December were affected by the downturn in consumer activity on the high street, which resulted in a savage price war as retailers fought to maintain their share of the dwindling market.

The Government’s cut in the VAT rate, from 17.5% to 15%, is also expected to have had an effect – if just to add to the decline in the retail sales price deflator.

The ONS figures have defied analysts’ gloomy expectations in recent months – revealing an unexpected 0.3% rise in sales between October and November, compared to economists’ forecasts of a 0.4% fall.

Despite this, economist Howard Archer, of IHS Global Insight, has predicted a contraction of 0.8% month-on-month. Pub group JD Wetherspoon will reveal tomorrow how it has fared in recent weeks as the consumer spending downturn picks up pace.

The firm’s figures follow a worse-than-expected update from rival Punch Taverns, which reported a 12% fall in like-for-like profits per pub since November 4.

But Wetherspoon has so far held up well despite the wider economic troubles, reporting a 1.5% rise in comparable sales in the 13 weeks to October 26.

It is until now thought to have benefited as casual diners trade down to cheaper options, such as Wetherspoon.