Britain's Morrisons puts faith in sharper pricing to win back shoppers

By James Davey

LONDON (Reuters) -British supermarket group Morrisons forecast a return to earnings growth this year as a push to improve its price competitiveness starts to win back shoppers battling an escalating cost-of-living crisis.

Morrisons, owned since 2021 by U.S. private equity firm Clayton, Dubilier & Rice, was overtaken as Britain's fourth-largest grocer by market share by German-owned discounter Aldi last September, according to researcher Kantar.

Monthly industry data has consistently shown the group underperforming rivals including market leader Tesco and No. 2 Sainsbury's.

But Chief Executive David Potts said the company's focus since October on becoming more competitive on key products had started to bear fruit, and further work on prices would attract customers this year.

"Our competitive position in the market has improved significantly throughout the last few months," he told reporters, highlighting a programme since October of price cuts on essential products, price freezes and fuel promotions.

"Customers are noticing and starting to vote with their feet."

That gave Potts confidence that earnings would grow this year, despite continued cost and other inflationary headwinds.

He said improved sales momentum was evident in the new (2022-23) financial year with sales in the three weeks before Christmas up 2.5% year-on-year.

Tesco and Sainsbury's both reported better-than-expected Christmas trading.

Morrisons has a UK grocery market share of 9.1% but differs from its main rivals in that it also has its own production operations, making half of the fresh food it sells.

Retailers in Britain are competing to draw in increasingly price-conscious shoppers.

With UK household finances squeezed by inflation that stood at 10.5% in December, consumer confidence is close to historic lows.

British consumer spending in December saw its steepest year-on-year drop in at least 25 years, according to official data.

In the financial year to Oct. 30, Morrisons reported a 15% drop in core earnings (EBITDA) to 828 million pounds ($1.03 billion). While total revenue was up 2.2% to 18.4 billion pounds, underlying sales fell 4.2%.

Analysts have suggested that Morrisons' debt burden following CD&R's 7 billion pound purchase has impacted its ability to be competitive on prices.

But finance chief Joanna Goff said net debt would fall in the current year, supported by an increase in earnings, an increased focus on cash, including lower capital spend, and a plan to improve working capital by 500 million pounds over the medium term.

($1 = 0.8065 pounds)

(Reporting by James Davey; Editing by Sarah Young, Jason Neely and Jan Harvey)