Response to rivals’ merger expected when Morrisons gives update
PUBLISHED: 16:22 07 May 2018 | UPDATED: 16:22 07 May 2018
Morrisons chief executive David Potts is set to be quizzed on the £12bn merger of Sainsbury’s with Asda when the supermarket reports first quarter figures on Thursday.
The tie-up between the second and third biggest players will spark one of the biggest shake-ups in the supermarket sector since Morrisons itself took over Safeway 14 years ago.
But with a raft of competition issues being scrutinised, the response of rivals to the threat of a new sector leader will be keenly watched.
The tie-up will create a supermarket titan bigger than Tesco with revenues of £51bn and a network of 2,800 Sainsbury’s, Asda and Argos stores.
Analysts at Jefferies said for Morrisons, the deal could spark opportunities if, as expected, Sainsbury’s and Asda have to offload a host of stores to clear competition hurdles.
“At this stage, we consider the Sainsbury’s-Asda deal - if approved by the competition authorities in the second half of 2019 - as an opportunity for net capacity exits in some important Morrisons regions,” the broker said in a research note. “The potential that this may lead to a number of store purchases - at bargain prices - is another important consideration.”
Shore Capital retail expert Clive Black added that Morrisons would also benefit as it is left to concentrate on growing sales.
“The group is financially strong, focused and we believe well placed to focus and deliver on its ‘fix, rebuild, grow’ strategy as grocery peers become embroiled and potentially distracted by what is likely to be an extended, multi-year CMA investigation/integration process,” he said.
The first quarter update from Morrisons is expected to confirm the group’s 10th quarter in a row of rising sales, although it will reveal the impact of the Beast from the East snow disruption at the end of February and March.
Shore Capital and Jefferies predict like-for-like retail sales to rise by around 1.3%, down from 2% in the previous three months and the slowest growth for two years. Group like-for-like sales, including wholesale deals, are set to lift by 2.5%, down from 2.8% in the previous quarter, according to Jefferies.
Analysts have praised the turnaround plan being led by Mr Potts, including his recent launch of the cut-price Wonky vegetable range.