Morrisons Says U.K. Food Industry Faces Sustained Price Pressure

(Bloomberg) -- Takeover target Wm Morrison Supermarkets Plc warned that the U.K. food industry is facing sustained inflation that threatens to continue the rest of this year.

Higher raw material prices and freight charges have led to “slight inflation” in the retailer’s first half, and the company is enacting cost-cutting measures because it’s set to continue in the second half, Morrison said Thursday.

Supermarket prices have been rising in the U.K. due to supplier shortages, and the situation has been worsened because there aren’t enough truck drivers in the U.K. after Brexit, grocers say. Morrison has started to send its own trucks on occasion to pick up goods from suppliers to relieve pressure on its supply chain, said Chief Executive Officer David Potts.

“It is an issue,” the CEO said in a phone interview. “And it’s very important that the industry, the government and ourselves look at this quite seriously and see how we can eradicate this problem.”

The grocer also reported a drop in sales as people ate fewer meals in the home following the end of lockdown restrictions. Revenue fell 3.7% on a like-for-like basis excluding fuel and value-added tax in the second half, Britain’s fourth-largest grocer said Thursday, missing analysts’ expectations. The grocer is also up against tough comparisons last year when sales surged as a result of stockpiling and greater demand for food in the home. 

Although sales in Morrison’s online and wholesale operations continue to grow, profit was dented by higher costs for running stores with pandemic restrictions.

The results come as Morrison remains at the center of a takeover battle between a consortium led by Fortress Investment Group LLC and U.S. private equity firm Clayton Dubilier & Rice LLC.

CD&R is currently leading the battle with a 7 billion-pound ($9.6 billion) proposal for the Bradford-based grocer which has been recommended by the board of Morrison. Fortress, whose last offer was about 6.7 billion pounds, has yet to respond with a higher proposal. 

Morrison shares rose were little changed at 292.80 pence at 9:06 a.m. in London. The shares have been trading above CD&R’s 285 pence-a-share offer for almost three weeks.

On Wednesday, Morrison called for an auction process to determine the highest price each party would pay to  settle the outcome of what will be Britain’s biggest take-private in a decade. The auction will likely take place at some stage ahead of a shareholder vote around mid-October. 

Britain’s grocers were among the lockdown winners as pandemic restrictions drove overall food sales and accelerated the shift to online shopping, even though they had to absorb large costs to run stores safely. 

©2021 Bloomberg L.P.