Morrisons finds it grim down south

Morrisons' reputation was the worst of any company in 2005. Hannah Marriott examines the factors behind the supermarket chain's fall from favour and asks what it needs to do to recover some credibility

How Morrisons must have longed for the new year to tick around and 2005 to end. The UK's fourth-largest food retailer endured a torrid year, with four profit warnings, much-publicised boardroom wranglings and departures, calls from investors for chairman Sir Ken Morrison to resign and threats of strikes.

It is no surprise that the supermarket's reputation took a battering - coming rock bottom in PRWeek's Reputation Monitor of press coverage for 2005 (PRWeek, 9 December 2005). Meanwhile Safeway - whose acquisition has dogged Morrisons since the deal was completed in March 2004, and which continued to exist as a brand for most of the year - fared little better, taking fourth-worst place in the same table.

The post-acquisition period was tough for Morrisons. The Competition Commission's investigation into the merger took more than a year, during which time Safeway floundered. Just four months after the £3.3bn deal was done, Morrisons issued its first profit warning since floating in 1967.

Now, with hundreds of new stores in the south, the traditionally northern brand must appeal to a much wider audience - and overcome a sceptical media and lukewarm public response.

'It was Morrisons' deserved reputation as a superb grocer, plus an eventually helpful Competition Commission outcome, that saw Sir Ken overcome the doubters, despite Morrisons' plummeting share price,' says former Observer consumer business correspondent Sarah Ryle, now at The Milbrook Partnership. 'Subsequent events suggest, however, that they did not understand what they were buying.'

The Grocer editor Julian Hunt says: 'Morrisons had always had a love/hate relationship with the City, but that didn't matter when it was relatively small, growing organically. Once it became a top-four supermarket that relationship had to change.'

Lack of preparation
Similarly, Sir Ken had always had a prickly relationship with the media, which only became more problematic when the merger necessarily catapulted his profile. Former Sainsbury's director of corporate relations Jan Shawe notes: 'The media moved from being intrigued and beguiled by this David-and-Goliath tale to deriding Morrisons' management for neither recognising nor preparing for the challenge.'

The culture clash of a family-run, North-based business buying a retailer known for innovation was a central problem. Rumours of Morrisons' bullish attitude toward Safeway staff pervaded the press, and differences in IT and accounting systems caused financial problems.

So what can be done to improve Morrisons' reputation and ensure it has a better 2006? A five-strong team at Citigate Dewe Rogerson is retained for financial PR, with consumer work handled by 13 people in-house, headed by PR director Gillian Hall. No former Safeway PROs work for Morrisons.

In the City there is some progress. Appointments to strengthen the board have begun sending the right messages to investors, and a new chief executive is being sought, who could be crucial to Morrisons' recovery. But many retail journalists point out that given the cut-throat nature of the sector, Morrisons' consumer PR is surprisingly low-key.

In response, Morrisons' PR team issued this statement: 'As Britain's newest national supermarket chain, Morrisons [is] focused on ensuring customers get the very best value, quality and service.

These are our guiding principles and they have not changed since the company was founded in 1899.

'We have achieved the biggest retail conversion exercise ever undertaken in the UK. The PR team has worked hard to support this process and deal with the increased local and national interest in the company.'

Customer confusion
Indeed, on 24 November 2005, the 16-month process of converting 219 stores ended. The transition had been confusing for customers, with some stores bearing Safeway signs while carrying Morrisons stock, and others featuring Morrisons-branded forecourts at Safeway stores. But now that Morrisons has just one name for all 360 stores, what does it stand for?

The brand is respected in its traditional heartland. But in the South there is no heritage, and the focus on value, along with the garish yellow and black logo, can be off-putting.

Hunt argues that Morrisons is an exemplary supermarket in many ways, winning awards for its fresh produce, delis and fish counters: 'The problem for many writers is they have never been to one, so they have a funny view of the shop, as if it's full of whippets and pies.'

Morrisons needs to dispel these myths in the mainstream press. To progress, says former Woolworths PR chief Nicole Lander, it must better address the London-based opinion formers of the City and the media: 'Asda did it - it is Leeds-based but with a London-based press office, and you always see its PR people at retail events.'

Weber Shandwick deputy MD of corporate and public affairs Malcolm Gooderham, who used to lead the Asda account, says: 'Now Morrisons has a chance to tell a consistent story, get back to basics and decide what its brand means and who it is targeting. The execution of that message comes later.'

With a new CEO set to arrive this year, 'Britain's newest national supermarket chain' has a job on its hands to convince the public and the media of the reasons to shop there.

Hard times at Morrisons

March 2004
Safeway deal completed.

July 2004
First profit warning.

January 2005
Sales for the six weeks to 9 January rise just 0.1 per cent. Analysts had expected two to six per cent growth.

March 2005
Second profit warning. Financial director Martin Ackroyd and non-executive director Duncan Davidson resign.

May 2005
Morrisons calls in KPMG, admitting its own finance department is not in control. Fourth profit warning issued. Internal disputes hit the headlines.

June 2005
Fifth profit warning issued - projected profits for 2005/06 slashed from £225m-£275m to £50m-£150m.

Aug-Sept 2005
Strikes threatened over Morrisons' plans to shut two former Safeway distribution centres.

October 2005
Results for the six months to 24 July show a 2.6 per cent increase in like-for-like sales, excluding fuel. In converted Safeway stores there is a 10.9 per cent sales upturn, and a 23 per cent increase in customer numbers. But sales in core Morrisons stores fall by 2.7 per cent, and there is a pre-tax loss of £73.7m - compared with profit of £121.6m for the same period in 2004. Bob Stott reveals he will step down as CEO once a replacement is found.

November 2005
Safeway conversion programme completed.

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