Morrisons appoints David Potts as chief executive: What the analysts say

“Shore Capital welcomes the appointment by the board of Morrisons of David Potts as its new chief executive. Potts is a highly experienced and effective retail operator, having worked at Tesco for nearly four decades including responsibility for the core UK business for much of that time. Crucially, to our minds, Potts knows and understands Morrisons recently appointed chairman, Andrew Higginson, and the interim chief executive, Trevor Strain, very well too, having worked with them at Tesco for many years.

“We do not expect material strategic change in direction from Morrison”

Clive Black, Shore Capital

“We believe that Potts’ expertise on the UK market made him the prime candidate for the role and it is not a surprise to our minds that he has been appointed. We believe that he will bring focus and pace to Morrisons, a business where in tandem with Higginson and Strain, we view the current strategy as being correct but the execution in particular needs correction.

“We do not, therefore, expect material strategic change in direction from Morrisons. We will naturally, however, expect some adjustment to operations, which may involve further evolution of the senior executive team. In this respect we believe that there could be wholesale evolution of the non-executive team that, to our minds, has overseen some dreadful decision-making.

“Finally, while the superstore estate is expected to be the prime focus of Potts’s attention in the immediate future, we will also naturally watch with interest to see what Higginson and Potts do with respect to its ecommerce model and the 25-year no break clause contract with Ocado. To our minds we would be surprised if this model was deemed to be the way forward.” Clive Black, Shore Capital

“The announcement that Morrisons has appointed a new chief executive, David Potts, is good news. We now expect a new strategy in 2015 to rebuild the product offer, service and sales growth. We believe the retail experience of Potts, with over 40 years of experience at Tesco and more recently as retail director of Tesco UK, puts Morrisons in a good position.

“We believe the potential for Morrisons to improve sales and profits is good. Morrisons is 23% vertically integrated and hence has the ability to differentiate itself in its offer and an ability to substantially rethink its ranges and promotional offerings. The underlying profit range remains £335m to £365m.

“We expect a decline in sales of around £400m this year to £13bn”

Mike Dennis, Cantor

“The positive is that despite Morrisons’ main competitors using strong promotional mechanics, they have managed to seemingly improve their shopper numbers, helped by convenience stores. We still expect 2014/15 sales to be lower than 2013/14 and will need to see what the operational de-gearing impact has been from all the continuing promotional and price investments.

“The new chief executive will need to manage underlying costs when top-line industry sales are expected to remain under pressure in 2015. We expect a decline in sales of around £400m this year to £13bn. If average item prices keep falling by 2% to 3% year on year, Morrisons might need to reassess the use of a loyalty card.

“Morrisons are still opening new space, have a growing but immature margin dilutive convenience store operation (185 open), an online operation (joint venture with Ocado) and a distribution network that is improving due to better case volumes, yet they expect to make £220m of cost savings (1.7% of store sales).” Mike Dennis, Cantor

“Former Tesco executive David Potts becomes the new chief executive with a tough ask to get the company in a position to fight both ends of the supermarket war, where Morrison’s are seemingly stuck in the middle as a somewhat jack-of-all-trades of the bunch.” William Nicholls, London Capital Group

“Given chairman Andrew Higginson’s long period at Tesco, it was always likely that Morrison would recruit a chief executive with a Tesco background. It is easy to forget, after the revelations of recent months, just how efficient an operator Tesco was a few short years ago when Higginson and Potts were there. Clearly, Higginson knows Potts well and is getting a known quantity. Although Potts does not have experience as a chief executive of a listed company, he does have chief executive experience (in Ireland and Asia) within Tesco. It is a sensible appointment.” David Stoddart, Edison Investment Research