3 Reasons I Might Sell Wm. Morrison Supermarkets plc Today

Wm. Morrison Supermarkets plc (LON: MRW) is suffering more than most at the hands of discount rivals.

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The grocery market is a markedly different beast since the financial crisis. That shopping trolley full of everything you needed and then some no longer made economic sense for many families. It was the right time for a chain like Aldi, which opened its 500th store last year, to steal a beat on its competitors. Combined, Aldi and discount peer Lidl now have a market share of 7.5%.

I don’t believe their success is temporary, either. Even as the UK economy recovers — growth should outstrip the rest of the G7 in the next six months — the discounters offer enough quality that will keep shoppers returning again and again.

More than that, there’s been a reputational shift. To be quite honest, I might have felt embarrassed exiting the family car with a boot full of Aldi bags at one point. But now Aldi is a staple of (figures claim) more than half of British households, and a winner of multiple consumer awards.morrisons

It could be argued that none of the “big four” grocers is hurting more from this shift than Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US). Not only is it the smallest — with a market share of 11.1% — but its most recent results painted a decidedly bleak picture.

I wouldn’t invest in Morrisons today. Here are three reasons why:

1. What is Morrisons?

Do customers know what they can expect to get when they walk through Morrisons’ doors? Is it at the high-end or the low-end of the market? I’m aware, but that’s because it’s a topic I write about fairly consistently.

Fundamentally, it has a fantastic store offering with an industry-leading focus on fresh produce. You might think a shopping trip would be expensive, which it can be, but there’s value to be found as well.

Price cuts have been announced as part of a turnaround strategy, and it’s crucial if footfall is to increase that the marketing efforts hit a homerun.

2. Playing catch-up

It took long enough, but finally this year Morrisons rolled out its website. Also, since the beginning of 2013, Morrisons has opened more than 100 M Local stores. These stores, Morrisons claim, will compete on price and offer 50% fresh produce.

Again, though, this won’t matter to customers unless they know about it. Where’s the marketing?

Morrisons is making up lost ground here, but there’s only so much grocery spending to go around. Worst case scenario is that it has to run just to stand still.

3. Customers are less loyal

The one time of year you could count on customers to get a big shop in is at Christmas. Yet Morrisons’ sales declined nearly 6% during the festive period and it issued a profit warning.

There’s less customer loyalty than ever before. A shopper might pick up cheap groceries, snacks and toiletries at Aldi or Lidl, then visit Morrisons for the odd special item.

tescoIn addition Morrisons is facing a rejuvenated Tesco this year, and while Sainsbury’s is slowing down, it isn’t going to simply wilt.

The whole sector is out of favour

The grocery sector is out of favour right now, and while you may believe there’s an opportunity to pick up a well known blue-chip at a bargain price, that’s your decision.

Personally, I feel that’s difficult. Brokers and analysts study companies like Tesco, Sainsbury’s and Morrisons daily, and as a result they’re more likely to be priced correctly. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark does not own shares in any company mentioned. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

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