Tuesday 28 February 2017

Dark horse reigns

A key task for the Wicklowman will be maintaining market position for the UK food retailer

The appointment of Dalton Philips as chief executive of Morrisons, Britain's fourth-largest food retailer, is the latest milestone in the 41-year-old Wicklowman's career.

When Morrisons announced on Thursday that it had selected Philips, overlooking several internal candidates in the process, to be its next boss, the almost universal response from UK analysts was "Dalton Who?"

We know better in this country. Philips, originally from Glenealy in Co Wicklow, was chief executive of Brown Thomas from 2005 to 2007. His father was the owner of the Ballyfree eggs business, which was eventually sold to Kerry Group.

Philips graduated from UCD with a degree in urban geography and retail distribution as well completing a graduate diploma in marketing and business management from DIT. After working briefly for Coras Trachtala he joined the Hong Kong-based conglomerate Jardine Matheson retail operations, spending time in New Zealand, Australia and Spain.

It was while he was with Jardine that he was first identified as a high-flier, being selected to study for a graduate MBA at Harvard.

In 1998 he joined WalMart, serving with its Brazilian operations before being appointed chief operating officer of its 100-store German operation.

After 14 years abroad he returned to Ireland when he was appointed chief executive of Brown Thomas, the up-market department store chain which is owned by the Canadian tycoon Galen Weston.

He was lucky to get the job when he did. The following year WalMart, unable to cope with the intense price-cutting competition in the German market, sold its stores in that country to rival Metro.

Philips quickly made an impression at BT and within two years he was off on his travels once again when he was appointed chief operating officer of Loblaw, Canada's largest food retail which is 63pc owned by Galen Weston.

The move from Brown Thomas to Loblaw represented a major move up the leagues for the then 38-year-old Philips.

He went from managing a group with a handful of stores and sales of just over €200m to being responsible for the day-to-day running of Loblaw, which has 1,200 stores, 135,000 employees and 2008 sales of C$30.8bn (€20.8bn).

During his three years at Loblaw, the group recorded only marginal sales growth while operating (pre-interest) profits were flat for most of the period. In his defence it should be pointed out that Loblaw was not without its problems facing increased competition from WalMart, supply chain glitches and under-performing stores.

However, this didn't count against Philips when Morrisons came looking for a new ceo to replace Marc Bolland, who is taking over from Stuart Rose as boss of Marks & Spencer.

With 403 stores and sales of stg£14.5bn (€16.7bn) for the year to the end of February 2009 Morrisons is actually slightly smaller than Loblaw. In addition, unlike Loblaw, the largest operator in its much smaller market, Morrisons trails in fourth place behind Tesco, Asda and Sainsburys.

Originally confined to the north of England, Morrisons became a national chain when it took over rival Safeway in 2004.

While the execution of the takeover was initially botched, matters improved rapidly following Bolland's appointment as chief executive in 2006.

The problem facing all of the other UK food retailers is the dominant position enjoyed by Tesco, which controls almost 31pc of the market.

The other three large supermarket chains, Asda, Sainsburys and Morrisons, have market shares of 16.6pc, 16pc and 11.8pc respectively. Given the lead enjoyed by Tesco the other three seem to be condemned to permanently playing catch-up.

So where does Morrisons go from here? Part of Philips' job will be managing relations with the founding family.

Although Ken Morrison stepped down as chairman in 2008, the family still owns 15.5pc of the company.

Keeping them sweet could well prove to be the least of his challenges. His most pressing one will be to ensure that Morrisons doesn't fall even further behind Asda and Sainsburys.

He will also need to take a long, hard look at Morrisons vertically-integrated structure, where it owns many of the producers and processors which supply its shops.

Most of the other UK retail chains have long since divested themselves of such in-house processing and production operations.

Morrisons also lacks a presence in the convenience sector. While the Safeway purchase gave it the critical mass of stores in southern England and Scotland which it had previously lacked, it sold 114 of its smaller stores to Somerfield in 2004. While this might have seemed like a good idea at the time it doesn't seem so smart now.

With Tesco aggressively targeting the convenience store segment of the market through its Tesco Express format, this lack of a small-store offering is beginning to look like a serious strategic weakness for Morrisons.

One possible way forward would be to either merge with or take over another food retailer. Unfortunately that would probably create as many problems as it would solve. The UK competition authorities would almost certainly be extremely reluctant to sanction any tie-up between Morrisons and either Asda or Sainsburys. That leaves only the Co-op, with a 9pc market share, and Waitrose, the food arm of the John Lewis Partnership which has a 4pc market share, as possible partnership candidates.

While a deal with Waitrose might, just might, be conceivable, it is difficult to see a link with the sprawling Co-op, which has over 2,200, mostly small stores being a runner under any circumstances.

Which almost certainly means looking overseas. While Morrisons could be attractive to one of the major mainland European food retailers such as Carrefour or Royal Ahold, Philips is likely to want to be the one doing the acquiring and remain his own boss.

With his experience of having already worked in seven different countries, Philips, who is fluent in Spanish and Portuguese and also speaks some Italian, is well-placed to lead any overseas push by Morrisons.

And it's not just his own retailing experience that he can draw on. His wife Penny is a niece of Arnotts chairman Richard Nesbitt.

Also helping will be Philips' excellent people skills with all of those who worked with him praising his ability to lead and motivate colleagues.

It bodes well that his former boss, Loblaw deputy chairman and president Allan Leighton, praised him highly when the Morrisons appointment was announced.

"He's a very good retailer, he has a nice touch and is excellent with people," Mr Leighton said.

Philips will need all of his people skills to soothe the ruffled feathers of the disappointed internal candidates, particularly Morrisons' highly regarded finance director Richard Pennycook.

With his background in logistics and operations instead, Philips needs to retain the disappointed Pennycook's services, at least in the short term.

How he handles this potentially difficult issue will quickly reveal if his much-vaunted people skills are as good as we have been led to believe.

As he prepares to move from Loblaw's headquarters close to Toronto, Canada's largest city, to the rather less cosmopolitan Bradford, where Morrisons is based, Philips will have a full "in box" waiting for him when he starts his new job in March.

Irish Independent

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