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article imageMorrisons kicks-off price war with £1bn in supermarket price cuts

By Nicole Weddington     Mar 18, 2014 in Business
A price war started by Morrisons has dealt a £1.3 billion blow to the value of listed supermarkets. Shares in Morrisons company stock dipped 8pc after the company, which has been enduring hardship, disclosed its intention to slash prices.
The company has suffered a pre-tax loss of £176 million for this year up to 2 February.
Being unable to keep pace with its rivals, Morrisons announced that it would invest £1 billion in product improvements and price cuts over the following three years.
The announcement also had a negative impact on competing stocks including J Sainsbury which showed a 6.6pc tumble and Tesco with a drop of 3.1pc per share. Those three supermarket chains saw the greatest declines in the FTSE 100 and those declines dealt a £1.3 billion blow to their combined market values.
Broker Shore Capital analyst Darren Shirley commented that other supermarket companies would likely not remain idle over this development and further stated that there is likely a pricing “contagion” on the horizon. “Price investment with a refocused promotional programme can only be considered a worry for the industry and investors therein,” he said.
Shirley also stated that the scope of impact for this pricing 'contagion' could be very broad. “Gross margin pressure can be expected to build,” he said.
Some analysts at Jeffries even went so far as to say that Morrisons is “getting the bazooka out” with this move.
Discounters Aldi and Lidl have also dealt a blow to the Big Four mid-market grocers' bottom lines. Tesco's current UK market share is its lowest in a nearly a decade, according to data provided by Kantar Worldpanel.
Dalton Philips, Morrisons chief executive, has been feeling the pressure, both preceding and following the price cuts. “The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail,” he said.
Philips further stated that Morrisons is reducing their cost base significantly and plans to invest £1 billion into their proposition over the course of the next three years. The goal of these objectives to improve the company's value and to fortify its competitive position.
“Customers will see this in our stores as well as in our fast growing online and convenience offers,” Philips said.
Morrisons also has plans to sell off assets considered “non-core” including Kiddicare – an online retailer specialising in baby equipment.
The aftershocks of this decision are already being felt and anticipated industry-wide, giving the impression that the efforts to edify one company could shake others at their foundations.
More about Supermarket, price war, Savings, Discounts, United Kingdom
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