Integration issues trouble Morrisons

Supermarket chain Morrisons is still struggling to integrate the IT systems it inherited with its £3bn purchase of rival Safeway 14 months ago.

The chain has issued its third profit warning since the March 2004 acquisition, citing difficulties with the transition from Safeway's logistical infrastructure to its own bespoke systems.

Morrisons says the problems will continue until November.

'The performance of the group overall remains heavily impacted by the temporary dual running costs of distribution, administration and IT functions necessary to the conversion process,' the company said in its first quarter preliminary trading statement.

'The board now considers that these duplicate costs will remain higher and take longer to eliminate than the market anticipates.'

This is the third time Morrisons has released a profit warning since taking on Safeway's 327 UK stores, and analysts say the company has run into unforeseen problems (Computing, 23 March).

Martin White, independent consultant and ex-Sainsbury's supply chain director, says Morrisons' bespoke, manually intensive systems and processes have not scaled well.

'While it is generally believed in the [retail] industry that Morrisons' systems were pretty rudimentary and that Safeway's were pretty good, Safeway's systems were switched off pretty much on day two of the merger,' he told Computing.

Morrisons' decision to remove key Safeway operational staff early on in the merger process has also left the company with a lack of in-depth knowledge of Safeway's business, says White.

Teresa Jones, senior analyst for research firm Butler Group, said: 'There is probably a lack of knowledge of what each system actually does for the business.'

Morrisons' heavily bespoke IT systems and Safeway's PeopleSoft-based infrastructure on both run on IBM mainframes. But Jones says this doesn't necessarily make for easy integration.

'Where charts of accounts have very different structures, this can make migration very complicated,' she said.

Morrisons' full results for its last financial year ending January 2005 wrote off £40m of outstanding Safeway supplier rebates.

The company took a £180m hit in July 2004, and said it was unaware that Safeway had introduced a new accounting system one month before the takeover.