Morrisons cuts to meat and veg prices raises stakes for supermarket sector

Supermarket group Morrisons has piled on extra pressure on the sector's margins with a new round of 12% price cuts to 160 everyday items, which analysts suggested could prompt reprisals from rivals such as Asda.

Making the most of its position as an integrated food producer and retailer, the FTSE 100 company's rolling 'price crunch' programme this week cut prices on meat and poultry products ranging from lamb shoulder and gammon joints to thin cooked ham and Brussels pate, as well as vegetables including carrots, broccoli, potatoes and tomatoes.

Yorkshire-based Morrisons announced the price cuts would cover close to 130 top-selling cooked meat, fresh meat and poultry products, along with more than 30 fruit and vegetable lines.

Andy Atkinson, customer and marketing director, said: “Meat is one of the priciest items in families’ shopping baskets and as kids go back to school the cost of packed lunches is an added cost.

“We’re a British company, making our own ham and buying our own cattle here in Britain. By doing this efficiently ourselves we can pass much-needed savings on to customers.”

So far in 2016, Morrisons has reduced the prices of over 4,435 products.

Analyst Mark Brumby at Langton Capital pointed out that retailers "may be getting the cuts in early as food price inflation could arrive in the autumn on the back of a weaker pound".

House broker Shore Capital said Morrisons vertical integration gave it the capability to be somewhat differentiated from larger listed rivals Sainsbury and Tesco and German discounters Lidl and Aldi in its pricing, promotions, packaging and merchandising, with the latest cuts an example of the recent years' chipping away at the price differential against the limited assortment discounters (LADs).

"Whilst the LADs will remain on the pricing case, the narrowing of fresh food price differential alongside broader self-improvement, the latter clearly evident at Morrisons and Tesco, means this process is expected to continue," wrote analyst Clive Black.

"Additionally, the industry has the matter of Asda to fret about. Under new CEO, Sean Clarke, Asda has to address debilitating sales contraction with some urgency, which leads us to believe that it will be entering the next phase of its pricing strategy sooner rather than later."