Supermarket sweep continues as Morrisons boss Dalton Philips steps down

13 January 2015 -


“Big Four” supermarket begins search for new leader to take on the growing threat of discount retailers

Jermaine Haughton

Morrisons is scouring the aisles for a new boss with the skills and experience to bring the troubled retailer back to growth, following its announcement that chief executive Dalton Philips will stand down after five tumultuous years. Philips will leave once the chain publishes its year-end financial results.

Deputy chair Andrew Higginson – appointed in July to succeed Sir Ian Gibson sometime this year – says that the “Big Four” supermarket needs a new leader to bring a fresh perspective on how to grow the business. “In the next chapter of Morrisons’ development,” he said, “we need to return the business to growth. The Board believes this is best done under new leadership. I would like to thank Dalton for his contribution as CEO.”

News of Philips’ impending departure coincided with Morrisons reporting a 3.1% drop in like-for-like sales, excluding fuel, in the six weeks up to 4 January. The supermarket had already confirmed in the past few days that it has been forced to close 10 loss-making stores, and in June last year it announced plans to slash 2,600 management posts.

Philips will go in the knowledge that he has left a mark on Morrisons, particularly by launching its online platform, opening small convenience stores and updating its operating systems: an important step in the light of technology’s increasingly vital role in the retail sector. As Higginson explained, Philips “has brought great personal qualities and values to his leadership of the business, having had to manage against a background of considerable industry turmoil and change”. Higginson stressed: “He deserves particular credit for facing into and dealing with the pricing issues that have now become evident, for taking the business into the convenience and online channels, and for the steps he has taken to modernise the company's operating systems. We wish him well for the future.”

“Morrisons is a great company with exceptionally talented people,” Philips said, “and I have been very proud to have worked with them. Over the last five years, we have made many improvements to the business and given Morrisons strong foundations for the future. I wish every success to the company and all of my colleagues who have worked, and continue to work, so hard.”

Worth around £174.5 billion, the UK grocery market is more competitive than ever. German discount retailers have entered the fray, using substantially lower-priced follow-on brands to eat into the dominance of Britain's leading supermarkets. According to Kantar Worldpanel, all of the big UK supermarkets lost market share over the Christmas period, with just Aldi and Lidl’s stakes rising year-on-year – by 0.8% and 0.4% respectively. Even from a recruitment standpoint, Aldi has challenged the traditional retail employment model by offering graduate managers the UK’s highest published entry-level salary of £42,000: clear evidence of a confident business.

Sales at Sainsbury’s fell by 0.7% over the latest period, but that was just enough for the chain to reclaim its standing as Britain’s second-largest grocer for the first time since 2003. Tesco’s sales fell by 1.2% compared with last year and, while this was the outlet’s best performance since March, it continues to lose market share – down to 29.1% from 29.6% a year ago. At Morrisons and Asda, sales fell by 1.6%.

Warwick Business School professor of practice Christopher Beer, who mentors and trains CEOs, argued that Philips’ successor has plenty of strategic work cut out. “No doubt the new CEO at Morrisons will need to show the kind of decisiveness shown by new Tesco boss Dave Lewis –potentially cutting capacity and jobs. A clear statement of intent is needed. There’s no question that whoever comes in will have a tough job to do.”

He added: “To be fair, some good things have been done, but it is arguable that they have been too little and too late. Improving the online offering and developing a more coherent convenience strategy were critical – but Morrisons is in catch-up mode. Even the bold decision to declare that profits would be sacrificed to sustain competitiveness looked like a panic move.

“The overriding challenge though is to find a space in the market that resonates with consumers – in short, why Morrisons? Historically, the main reason for shopping at Morrisons was that they were low price. Having lost that mantle to Aldi and Lidl, it is unclear why you would go to Morrisons. Clear differentiation communicated in a compelling way: that’s essential and not easy.” Beer stressed: “The new CEO will have many people telling him what’s wrong and what’s needed. But ultimately he will have to find his own way.”

One of the biggest challenges faced by retail managers is constant and rapid change in shoppers’ behaviour, and how that change affects the bottom line. Consumers have become more willing to forego spending extra on common branded goods such as bread or milk, while maintaining their interest in expensive high-value items like TVs. And significantly, Aldi, Lidl and convenience stores such as Poundland have benefited from consumers moving away from the weekly food shop to more frequent, local visits.

Last summer, the KPMG/Ipsos Retail Think Tank (RTT) warned bosses of the steady decline of the weekly shop, which could render out-of-town hypermarkets – a major chunk of retailers’ real-estate value – obsolete. “These changes in our shopping habits mean that the grocers’ property portfolios risk becoming no longer fit for purpose, as consumer trends outpace their long term development plans,” the RTT explained in a statement.

“[We believe] that the shift to convenience shopping has been driven by the industry itself, rather than consumer demand, after grocers opted to open smaller high-street sites to quickly gain a foothold in towns where they were underrepresented. Consumers have embraced convenience stores and ‘top up shopping’ so enthusiastically that the grocers have seen sales in their large format stores decline – cannibalised by smaller stores on the high street.”

For hints on how to manage change, explore CMI’s resources on the theme.

Image of Morrisons storefront courtesy of JuliusKielaitis / Shutterstock.

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