Morrisons looks to the internet to increase presence in capital

The launch will be focused on London and the surrounding area as the Bradford-based company is massively under-represented in this region.

Morrisons’ chief executive Dalton Philips said: “We have only got a 6.5 per cent market share in London so the opportunity to grow is large.

“There are locations that we’ve got to get into and can’t get into – London is one. So the internet is the way in.”

He added that if the model can work, it will be extended across the country. However, the main focus will initially be on London.

Morrisons is adopting an unusual approach to its online food operation, which won’t launch until 2013.

The company has bought a 10 per cent stake in New York online grocer FreshDirect, one of the few profitable online food operations in the world, for £32m.

As part of the deal, a top team from Morrisons will work alongside the FreshDirect team learning how to run the operation.

Mr Philips said the group had decided to take this route after 17 management consultants presented their ideas on the best way to launch an online food service.

When asked if any of them had successfully launched a profitable online food operation, all 17 said no.

Morrisons then cast its net around the world and settled on FreshDirect as the most likely to match its needs. Both companies have a strong focus on fresh foods.

Mr Philips promised that Morrisons’ online food offer would be totally different to rivals such as Tesco, Sainsbury’s and Asda, which he claimed were not making a profit.

“If you want a four-inch topside steak and your partner wants a three-inch fillet, you will be able to order it for the next day,” he said.

Morrisons’ finance director Richard Pennycook added: “Online food retail is a long and hard journey.

“We’re going to learn from FreshDirect and leapfrog all that pain that the others have been through. We don’t believe anyone in the UK has cracked it.”

They were speaking yesterday as Morrisons announced a strong set of annual results for the year to January 30.

The group cheered shareholders with confirmation of a plan to return £1bn to investors over two years and a commitment to double digit dividend growth over the next three years.

It is also to increase spending on opening new stores and is to test a convenience format at three sites along the M62 corridor. These will operate under the ‘M local’ name and the first will open in July.

The group said it could afford to reward shareholders and invest in the future after a strong annual performance.

It said pre-tax profits before one-off items rose 13 per cent to £869m in the year to January 30.

But it reported a slowdown in sales growth in recent weeks and said Britain’s grocery market was likely to remain subdued in the coming year.

Like-for-like sales rose 0.5 per cent, excluding fuel and VAT, in the fourth quarter of its financial year compared to 0.9 per cent growth for the year to January 30.

Morrisons’ shares rose 1.6 per cent last night to close up 4.5p at 285p.

The shares trade at a discount to rival grocers like Tesco, Leeds-based Asda and Sainsbury’s as it has been slower to enter markets such as convenience and online.

Arden Partners analyst Nick Bubb said its plans could help to close the gap.

Morrisons plans to open 2.5 million sq ft of new selling space in the three years to January 2014, compared with its previous target of 1.5 million sq ft over the three years to January 2013.

Morrisons aims to free up 750,000 square feet of selling space in its stores from rationalising its ranges, which could create room for more non-food goods such as clothing, homewares and kitchenware.

Mr Philips said the rationalisation had involved simple methods such as reducing the number of air fresheners from 168 lines to 92 and 58 plug-in air fresheners to 28.

He hopes to free up between five to 15 per cent of space.

Morrisons also has plans to step up investment in its own-brand ranges.

Mr Philips is expecting 2011 to remain tough for consumers.

“The consumer is feeling a real squeeze on the household budget,” he said. “Households have £100 less a month than last year, budgets are getting squeezed.”

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