Today I am looking at why I believe Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) remains a “risk too far” for savvy stock hunters.
Market share continues to collapse
Morrisons has proved helpless in defending itself against the intrusion of budget retailers on its sales performance. While Aldi and Lidl both saw their market share shoot up during the 12 weeks to February 2 — the former grew its share from 3.2% to 4.1%, while the latter grew its presence from 2.8% to 3.2% — Morrisons witnessed a 50 basis point drop in its share to 11.3%, according to Kantar Worldpanel.
And the ambitious expansion plans of these firms threaten to eat into Morrisons’ share even further. Lidl alone plans to open between 30 to 40 new stores per annum, the firm told The Telegraph last autumn, in its bid to raise the total number of outlets from around 600 at present to closer to 1,500.
Turnaround strategy failing to deliver
But Morrisons is not only facing a losing battle against the low-end retailers. While the chain saw total sales erode 2.5% during the 12-week period, the entire grocery market punched a 2.4% uplift in till activity. Although pressure on consumers’ wallets remains a problem, middle-ground retailers J Sainsbury and Asda recorded sales growth of 2.7% and 0.5% respectively during the period.
Unfortunately for its shareholders, Morrisons’ long-running recovery strategy is failing to deliver any sort of improvement. Although the company is latching onto strong growth in the convenience store space — the firm hopes to have 200 such outlets up and running compared, with around 90 at present — this does not set it apart from the competition, in which the likes of Tesco and Sainsbury’s also have vastly more exposure and experience.
Questions loom over online operations
Still, the supermarket’s decision to move towards the hot-growth area of convenience stores is a move in the right direction, as customers switch their shopping habits from making large purchases in huge, out-of-town supermarkets to making little-and-often trips to the shops.
The same can be said of Morrisons’ move last month into online retailing — indeed, research house IGD expects the internet grocery shopping market to grow by more than 120%, to £14.6bn, by 2018. However, Morrisons has had to fork out a fortune to online operator Ocado in order to launch its own service, a situation set to bite into profitability within this key channel. As well, the firm will also be faced with an intensifying battle against online stalwarts like Tesco and Sainsbury’s who are seeking pole position in this most lucrative of marketplaces.
