Morrisons | Annual Report and Financial Statements 2010

Turnover growth

Total turnover grew by 7%, or £1.1bn, with around half the growth coming from sales in our forecourts due to the worldwide increase in oil prices during the year. With petrol prices high, customers looked for value, and as a result more customers filled up at Morrisons. Fuel sales grew by 18%. Our store sales were again ahead of the market, with growth across all regions and a record 11 million customers visiting our stores each week. Like-for-like store sales rose by 0.9%, with customer numbers up 0.2% and average basket spend 0.7%.

As we entered 2010, we indicated that total market growth would be subdued due to the economic backdrop, and that our space opening programme in the year would be somewhat smaller than that of competitors, following the very significant space expansion that we undertook in 2009. In this context, we believe that our 0.9% like-for-like sales growth remained ahead of the market average. Our total market share increased slightly, as expected, to 12.8% during the year, despite the large amounts of new space being added by our competitors. We continue to be prudent in our requirements for new stores and only approve investments that meet the required financial hurdle rate.

New retail space

We increased our selling space by 0.4m square feet during the year through a combination of store extensions and 15 new store openings, including one replacement. Our growing confidence in our ability successfully to operate a wide range of store sizes is evidenced by our announcement in January that we had reached a conditional agreement with Asda to acquire 16 stores previously operated by Netto, subject to approval by the Office of Fair Trading. These stores, which average 7,500 square feet, will be converted to the Morrisons format and are expected to open in the second quarter of 2011. Along with the existing new store programme, we anticipate opening over 30 stores in 2011.

Trading

Morrisons has responded to the challenges faced by the consumer by delivering a programme of price cuts and innovative, industry-leading offers which have enabled our customers to save money and eat quality fresh food. In a difficult environment this strong focus on quality and value has, for the fourth year in a row, enabled us to deliver sales growth ahead of the market.

We have maintained our focus on the quality and provenance of our food offer whilst ensuring that we consistently deliver the value our customers demand. As a result our total store sales growth of 4.1% and like-for-like growth of 0.9% were once again ahead of the market. The strength of our offer meant that a record average of 11.0m customers visited our stores each week, an increase of over 0.5m (4.7%), although continuing pressure on consumer disposable incomes was reflected in only a marginal increase of 0.7% in the average basket spend in like-for-like stores.

The rise in the price of oil, exacerbated by increases in fuel duty and continuing Sterling weakness, meant that consumers were paying on average 15.8p per litre more at the pump than last year, with average unleaded prices per litre of 115p. Overall fuel price increases impacted our customers' disposable income by nearly £400m, income that could otherwise have been spent in-store. Our fuel volumes increased 4.8%, as customers shopped around for the best price in town. Overall, like-for-like fuel sales were up 18% in the year.

Throughout the year the market continued to be heavily promotional and Morrisons led the way in offering the greatest depth and broadest range of offers available. Our prime focus was on reducing the cost of everyday essentials and our offers on bread at 50p and fresh fruit and vegetables at 30p, represented the lowest priced staple products in the country. The range and value of our offers, including our 'Price Crunch Week' and extended 'Collector Card' over the Christmas period resonated particularly well with our customers, and they have visited our stores in record numbers.

Sharp everyday pricing and a strong promotions programme were a feature of Market Street, which again performed strongly. Our unique vertically integrated food production capability supported by the unrivalled food preparation that is carried out every day in-store, allow us to be flexible and offer more great value, innovative offers on fresh produce than any other retailer.

Our customers strongly approve of our support for British farming through our own farm at Dumfries, and because we are the only major British retailer selling 100% British fresh pork, beef, lamb and poultry raised to British standards of animal welfare. Our closeness to the source of our fresh products allows us to talk to our customers with authority about the provenance and freshness of our food offer, a quality which is becoming more important in an increasingly health-conscious environment. During the year we launched our new television advertising campaign which continues the strong emphasis on the provenance, quality and freshness of our food and on our in-store skills, with food stories told to school children. It has proved to be highly effective.

We continued to involve ourselves in the community through further expansion of our award-winning 'Let's Grow' initiative. This has captured the imagination of the nation's school children by showing them where food comes from, how to grow it and by providing them with a wide range of free gardening equipment including seeds, spades and greenhouses. The programme, now in its third year, has been a huge success with over 18,500 schools throughout the country, including 67% of UK primary schools, registering to take part.