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How I Rate Wm. Morrison Supermarkets plc As A ‘Buy And Forget’ Share

Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.

Today I’m looking at Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US)

What is the sustainable competitive advantage?

Morrisons is the UK’s fourth largest supermarket and, as such, lacks the competitive advantages like size and economies of scale that are available to its larger peers.

Unfortunately, this means that Morrisons is on the back foot when it comes down to competing with its peers. In addition, the firm’s late entry into both convenience stores and internet shopping have held back growth even more.

Having said that, Morrisons does have one advantage over its peers and this comes in the form of the company’s brand and strategy. In particular, Morrisons’ strategy is focused on offering customers a distinctive service with fresh, responsibly produced food.

Nonetheless, despite this reputation, the company is still unable to compete with larger peers on price and customer loyalty is fickle, especially in this harsh economic environment.  

Indeed, data recently released by market researcher Kantar Worldpanel showed that, during August, Morrisons’ year-on-year market share fell to 11.3% from 11.5% as the firm lost out to peers Lidl and Aldi.

Company’s long-term outlook?

Over the long term, to me, Morrison’s outlook appears cloudy.

As the country’s fourth largest supermarket, the company is going to have to work hard not to be swept under the carpet by its larger peers.

Indeed, with a net income of only £647 million during 2013, the company is unable to fight the likes of Tesco‘s £1 billion turn-around plan, which was financed from supermarket giant’s free cash flow of £2.8 billion during the same period.

That said, there will always be a constant demand for demand for food so Morrisons is unlikely to see a complete collapse in sales. Additionally, to some extent the company does not need to aggressively compete for sales as its food products sell themselves but this is at the expense of growth.

Foolish summary

All in all, Morrisons does not look like a good share to buy and forget. The company is having to fight hard to compete with its larger peers and the company’s relatively late entry to the online and convenience store market has left the company playing catch up.

So overall, I rate Morrisons as a poor share to buy and forget.

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In the meantime, please stay tuned for my next FTSE 100 verdict

> Rupert does not own any share mentioned in this article. The Motley Fool has recommended shares in Morrisons.