WM Morrison – a case study
(Note: Before you read on anything I predict is ‘Underlined,’ apart from sub-headings.)
1. Knowing the competition and what to look for
WM Morrison is a supermarket with sales mostly deriving from the UK. The business is traditionally part of a consortium of the so-called ‘big four’ supermarket that control the UK grocery market. There’re other players in this market, but they target a certain group of people, one are Waitrose and M&S; these are high-end supermarkets, the other being low-end supermarkets such as Aldi and Lidl. Also, I shouldn’t forget about the thousands of small and medium-size local shops covering the UK.
So knowing the supermarket is our first step to knowing the service they’re offering, the quality of its products, the targeted market and its reach to this market.
The second thing to do is to establish a financial metric system to evaluate WM Morrison’s financial and operating performance against its peers, and being a food retailer these are the most common metrics:
a. Like-for-Like sales;
b. Revenue against number of stores or number of sq. ft., employees and staff costs over revenue;
c. Overall year on year increase/decrease of revenue;
d. Profitability ratios (very important due to low margins in this sector);
e. The change in market share over a five to ten year period;
Thirdly, we need to look for other measurements that could differentiate WM Morrison from their peers such as an online presence, overseas markets and diversification.
Fourth, we can look at WM Morrison market valuation and compare against their rivals. The most important thing here is the trend.
Lastly, we take a look at each of the supermarket and the current valuation it is being received from the market.
2. A Financial metric system for comparison
a. Table is showing like-for-like sales (%) and annual revenue for WM Morrison and peers:
(Annual basis) |
2014 |
2013 |
2012 |
WM Morrison |
-2.8% (£17.7bn) |
-2.1% (£18.1bn) |
1.8% (£17.7bn) |
Sainsbury |
0.2% (£23.9bn) |
1.8% (£23.3bn) |
2.1% (£22.2bn) |
Tesco |
-1.3% (£63.5bn) |
-0.3% (£64.8bn) |
0% (£63.9bn) |
b. Table is showing revenue against number of stores or number of sq. m/ft. and number of employees:
2014 |