Supermarket prices will go up unless the UK government negotiates a tariff-free Brexit deal with Europe, the boss of Morrisons, Britain’s fourth-largest grocery chain, has warned.
“From our point of view representing British consumers we would like the government and the leaders of the country to negotiate a deal that includes no tariffs UK to Europe or Europe to the UK because tariffs do drive inflation,” said David Potts, the chief executive of the Bradford-based supermarket. He added that avoiding inflation was particularly important in a “recession year”.
Potts said Morrisons, which runs its own food processing and packaging plants and has direct relationships with farmers, was in a “good position” to weather the Brexit storm as two-thirds of the products it sells are British. But he added that the company could not stockpile perishable items, such as fruit and vegetables.
The major supermarkets are lining up for a tough Christmas as families watch their budgets in the light of job losses and economic difficulties caused by the Covid-19 pandemic. Potts said Morrisons had just launched its biggest ever round of price cuts as it prepared for a run up to Christmas in which “value and price will prevail”.
While sales at established stores rose 11.1%, profits at the company sank by a quarter to £148m in the six months to 2 August, as the supermarket was forced to keep prices low amid heavy competition while costs rose during the pandemic.
Morrisons spent an additional £155m including £47m in extra pay as it took on 45,000 more staff to cope with the shift shopping online and to cover for staff self-isolating or off sick at the height of the pandemic. A staff bonus, protective kit, and the need for more vans and lorries to make deliveries also added to costs, which were only partly offset by a £93m fillip from the business rates holiday.
Despite the profits fall, Morrisons said it was increasing its half-year dividend payout by nearly 6% to £49m. “The nation relies on our shareholders to provide assets [so Morrisons can] play our part in feeding the nation,” he said, adding that a decision on a planned special dividend was still being deferred.
Morrisons’ profits were also hit by the shift to less-profitable online sales as it doubled orders via its website and increased capacity for home delivery fivefold via a range of services including Amazon and a new box scheme.
Potts said Morrisons’ share of the online grocery market was now into double figures, up from about 6% earlier this year. “You can see we have got a wiggle on in the home shopping side of the industry,” he said, adding that growth is continuing, although at a slower pace than at the height of the pandemic.
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