This week saw Morrisons (LSE: MRW) announce a new price match policy and loyalty card. The company has stated that it believes the new policy is the most wide-ranging and effective of its kind, since it matches the prices of Morrisons’ products against discount retailers such as Aldi and Lidl.
It is hoped that the new price match promise, and the loyalty card through which customers will accumulate points for any differences in price between Morrisons and its peers, will boost sales and help attract new customers to the company.
Economic Changes
However, while it may provide a short-term boost, Morrisons’ longer-term sales numbers could increase for a number of other reasons. Indeed, over the last few years, no-frills supermarkets such as Aldi and Lidl have had it all their own way. Inflation has outstripped wage rises for a number of years and this has left shoppers with less disposable income in real terms.
In turn, this has caused price to become the number one factor in shoppers’ minds, with product quality, service and convenience being relegated to a distant second, third and fourth places. Looking ahead, though, wage rises are set to beat inflation as we move through 2015 and this could cause shoppers’ habits to change somewhat.
Sector Shifts
Furthermore, Aldi and Lidl have grown sales at a staggering rate in recent years. As history shows, this rate of growth will not persist in the long run, as no business can continually snatch market share over a long period. More likely is a natural slowdown in the rate of growth of discount retailers, which could be brought on by saturation.
Indeed, discount retailers have proven extremely popular in the north of England, but there is limited space for them to grow. Will they be able to make their business models work in areas where there are higher rents and higher disposable incomes? The answer could be ‘yes’, but at the moment it is assumed that it will be so. In other words, Aldi and its no-frills peers could disappoint moving forward, to the benefit of Morrisons.
Looking Ahead
With online and convenience stores continuing to offer strong growth potential, Morrisons’ move into those areas can’t come soon enough. Both of these spaces could help to stimulate the company’s top and bottom lines to a greater extent than the new price match and loyalty card scheme.
Furthermore, with the macroeconomic outlook being positive and the future unlikely to be such a smooth ride for no-frills operators, Morrisons (which trades at below net asset value) could prove to be sound long-term buy.