Is It Time To Dump Wm. Morrison Supermarkets plc And Tesco PLC?

2014 has not been a good year for Morrisons (LSE: MRW). The company’s shares are some of the worst performing in the FTSE 100, having underperformed by a staggering 35% year to date.morrisons

Unfortunately, it looks as things are only going to get worse for the company as it struggles to turn itself around. What’s more, it would appear that Morrisons’ management no longer has the company’s best interests in mind. 

Ignoring Customers 

Morrisons’ management has been accused of ignoring its key customer base multiple times over the past year as the group has tried to move upmarket, deserting core values.

However, now the group has realised its mistake, management is trying to turn things around. Prices have been slashed Morrisons has introduced its new “Match & More” loyalty card and price-matching scheme, which will offer shoppers money back if their shop would have been cheaper at Aldi and Lidl. 

Although this loyalty card scheme may have seemed like a good idea, it has been blasted by some analysts. The scheme’s complicated nature and numerous restrictions make the card difficult to use. Nevertheless, the loyalty card is only part of Morrisons’ cost-cutting drive designed to draw customers back into stores.

Indeed, management has stated that the “Match & More” card is part of the group’s £1bn investment into prices and products over the next three years. £300m of this investment fell during this financial year and part of this investment involved the company handing out a record number of food vouchers and discount tokens. Some analysts have claimed that this aggressive ‘vouchering’ is distorting sales figures and it remains to be seen if the company is really converting customers back to its offering. 

Starting to work 

Initially, Morrisons’ aggressive price cutting strategy appears to working.  During the four weeks to 17 August, sales data from Kantar Worldpanel showed that Morrisons’ sales rose by 2.4%. A strong performance driven by the company’s aggressive cost cutting, high-profile marketing campaign and online launch. 

But sadly, this recovery did not last long. Kantar recently revealed that during the past four weeks Morrisons’ sales slumped 4.9%. On the other hand, declines seem to be improving for Tesco (LSE: TSCO). Indeed, during the past four weeks Tesco’s sales only declined 2%.

Better positioned 

Unlike Morrisons, Tesco is in a much better positioned to launch a fight back against the discounters. For example, while sales at the UK largest retailer may be falling, the company’s sales in some divisions are still growing. 

In particular, for the six months ended 31 August 2014, Tesco Personal Finance PLC, Tesco’s banking arm, reported an 18.4% jump in underlying pre-tax profit to £117m. Total customer accounts for the period increased by 5.9% to 7.2m. Meanwhile, over in Europe Tesco’s group trading profit jumped by 42% at constant exchange rates.

Still, Tesco’s statutory profit before tax for the first half of the year slumped by 92%, although this does includes a number of one-off items. 

However, after the announcement that Tesco’s Chairman Sir Richard Broadbent is stepping down, the company will have replaced almost all of its top management team, giving the company a clean slate to start over with.

A new management team is something Morrisons might have to consider, if the current management continues to rack up poor results.

It's up to you 

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Rupert Hargreaves owns shares of Morrisons and Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.