Morrisons warns of 'significant cost pressures' as sales growth slows

Morrisons said it is facing “significant cost headwinds” after quarterly sales growth slowed, with chief executive Rami Baitieh warning that consumers are "feeling the squeeze" amid rising costs and tougher trading conditions.

The Bradford-based grocer reported sales of £4 billion for the three months to July 27, up 3.5% from a year earlier, down from 4.2% growth in the previous quarter. Baitieh said the retailer was managing the "incremental impact of the Autumn budget and other Government legislation," pointing to unexpected costs that have emerged since the start of the financial year.

Morrisons said it delivered £63 million of cost savings during the quarter and expects to reach a target of £1 billion of savings by the end of its financial year. The company has taken a series of measures to cut costs, including the elimination of 365 roles across its cafes, convenience stores and food counters earlier this year, and price reductions on about 650 everyday items to compete for customers.

Industry data from NIQ showed Morrisons' share of the grocery market fell to 8.5% over the three months to Sept. 6, down from 8.8% in the same period a year earlier. The figures underscore the scale of the turnaround challenge the retailer faces since its takeover by private equity firm Clayton, Dubilier & Rice in October 2021.

Baitieh said Morrisons remains focused on helping customers manage stretched household budgets while protecting the retailer's core offer of fresh food at competitive prices. "Consumers are feeling the squeeze and we are continuing to work hard to help our customers make the most of stretched household budgets, staying true to Morrisons values of providing good affordable fresh food for all," he said.

The company said the Autumn Budget measures that have added to costs include increases in employer National Insurance contributions and a new packaging levy, both of which have affected supermarket operating expenses. Retailers across the grocery sector have cited similar pressures, and the chief executive of Aldi UK recently said shoppers are still "finding things difficult," reflecting broader weakness in consumer spending on food.

Morrisons' performance highlights the tension facing supermarkets between absorbing higher operating costs and maintaining price competitiveness. The group said it will continue to pursue its £1 billion cost-savings plan while implementing targeted price cuts to attract customers.

Investors and analysts will watch the coming quarters for signs that the cost-reduction measures and price actions can stabilise the retailer's market share and margins. For now, Morrisons' management framed the results as part of an ongoing effort to balance support for customers with the need to manage the added financial burden created by recent government measures.