Introduction

In a significant move to streamline operations and reduce costs, Morrisons, one of the UK's leading supermarket chains, has announced the closure of 52 in-store cafés across its network. This strategic decision is part of a broader plan to revitalize the company and ensure long-term financial sustainability. The move comes as Morrisons faces rising operational costs and increasing competition from discount retailers like Aldi and Lidl.

Background on Morrisons

Morrisons was historically considered one of the UK's Big Four supermarkets, alongside Tesco, Asda, and Sainsbury's. However, in 2022, Aldi surpassed Morrisons in terms of annual sales, demoting it to fifth place. This shift in market dynamics has prompted Morrisons to reassess its operations and focus on cost-cutting measures to remain competitive.

In March 2023, Morrisons outlined plans to reduce costs by £700 million over three years to maintain low prices amid the ongoing cost-of-living crisis. This initiative reflects the company's commitment to ensuring affordability while navigating challenging market conditions.

Closure of In-Store Cafés and Other Services

The decision to close 52 of its approximately 400 in-store cafés marks a significant step in Morrisons' cost-cutting strategy. These closures, along with other changes, will affect several services:

• Cafés: 52 cafés will be closed, primarily due to local challenges and operational costs that are perceived as unsustainable relative to customer demand.
• Convenience Stores: 17 Morrisons Daily convenience stores will be shut down as part of optimizing the company's convenience offerings.
• Market Kitchens: All 18 Market Kitchens, which were introduced to provide fresh meals, will be closed.
• Meat and Fish Counters: 35 meat counters and 35 fish counters will be affected.
• Florists and Pharmacies: 13 florist shops and four pharmacies will also be closed.

Impact on Employees

Approximately 365 jobs are at risk due to these closures. However, Morrisons has indicated that most affected staff will be offered alternative roles within the company, minimizing the number of redundancies.

Rationale Behind the Cuts

Morrisons CEO Rami Baitiéh emphasized that the decision to close certain facilities is driven by the need to focus investments in areas that customers value most. He highlighted that while the cafés are well-regarded for their quality and community presence, some locations face specific challenges that make continued operation uneconomical.

The supermarket chain is also exploring partnerships with third-party providers to offer specialized services in some locations where counters or cafés are closing. This approach aims to ensure that customers continue to receive relevant and appealing offers while aligning with Morrisons' strategy to enhance efficiency and growth.

Market Dynamics and Competition

The UK supermarket sector is increasingly competitive, with discounters like Aldi and Lidl attracting price-conscious consumers. This competitive landscape necessitates that traditional retailers like Morrisons adapt their business models to align with changing consumer behaviors and preferences.

Trends and Challenges

• Rising Costs: Increases in operational costs, coupled with recent government policies such as rises in National Insurance contributions and the minimum wage, add to the financial strain on retailers.
• Shifting Consumer Habits: The rise of online shopping and home delivery services reduces footfall in physical stores, making certain in-store services less viable.
• Cost-of-Living Crisis: The ongoing crisis has heightened consumer sensitivity to prices, further emphasizing the need for retailers to maintain affordability.

Future Plans and Initiatives

While restructuring its in-store services, Morrisons remains committed to its core offerings. The company continues to operate Costa Express self-serve coffee machines in some stores and may explore further collaborations with third-party providers to enhance customer experience.

In addition, Morrisons reported strong quarterly sales growth, with a 4.9% increase in like-for-like sales for the three months ended October 2024. This positive performance suggests that turnaround efforts are yielding results.

Conclusion

Morrisons' decision to close in-store cafés and other services reflects a broader strategy to optimize operations, manage costs, and concentrate on areas that drive customer value. As the UK retail sector navigates challenges and changes in consumer behavior, such strategic adjustments will be crucial for maintaining competitive edge and ensuring long-term sustainability.

Key Points to Take Away

• Closures: Morrisons will close 52 in-store cafés.
• Total Closures: The move involves 174 service closures across various departments.
• Job Impact: Approximately 365 jobs are at risk, with most staff expected to be reassigned.
• Strategic Focus: Morrisons aims to enhance efficiency and focus on high-value areas.