Morrisons' new chief sets out agenda for expansion

The Bradford-based supermarket is the UK's fourth biggest and has lagged behind rivals in terms of expanding beyond traditional grocery retailing as it bedded down the difficult acquisition of Safeway six years ago.

But under Mr Philips the group is keen to make the most of its unique position as a major food producer as well as a retailer.

Morrisons will also carry out a limited internet trial in one area of the country, which is yet to be decided.

However Mr Philips said the group will only roll out the internet trial if it proves profitable.

Neil Saunders, consulting director of Verdict, said: "In truth it's incredibly difficult to make a profit selling food online and Morrisons is right to take its time to investigate this area and find the right model.

"With the good growth numbers they're showing there is really no need to rush headlong into the internet grocery market."

The three convenience stores will focus on fresh produce.

"We will offer a fresh, local and affordable alternative," said Mr Philips. "We do fresh really well, there is a real opportunity in this market."

The stores will be under 3,000 sq ft and while they will be too small to offer Morrisons' in house bakers, butchers and fishmongers, fresh produce will be the driver.

The move into convenience is one of a number of changes being introduced by Mr Philips.

Another is a trial to cut out between 5 and 15 per cent of space and introduce other products. Mr Philips said the space will be freed up by simplifying the range on offer as some ranges have become unnecessarily complex.

"When I started six months ago we had 16 different balsamic vinegars – it's confusing for customers," he said.

The space created by simplifying the ranges could be used in a variety of ways.

"It could be wider aisles, more fresh food, a non-food offer," he said. "Clothing is an option, we are trialling a Peacocks concession which is doing very well and there are great opportunities in health and non-food such as kids' clothes."

As well as simplifying the range Mr Philips is also keen to eliminate duplication on deals such as 'Buy One Get One Free'.

"At one point we had nine different teas on deal. It's confusing for the customer," he said.

Morrisons expects grocery market growth to remain subdued over the next 18 months, as rising fuel prices, taxes and unemployment limit

retailers' ability to pass on higher commodity prices. "Consumers continue to be under pressure," he said. "We expect a further period of low industry growth."

In the six months to August 1 the group saw underlying pre-tax profits rise 14 per cent to 410m. Like-for-like sales rose 0.9 per cent in the first half, a slight pick-up from the 0.8 per cent increase in the first quarter. Mr Philips said he believes Morrisons is a "nose ahead" of rivals, which are yet to report second-quarter sales.

Morrisons said that higher petrol prices cut the disposable income of its 11 million customers by about 240m in the first half. It is confident of hitting full-year profit forecasts and raised its interim dividend by 14 per cent to 1.23p a share.

Mr Philips said the group, which is Britain's second-biggest fresh food manufacturer, will invest in food production, which should boost earnings by 50m over three years.

Finance director Richard Pennycook said the investment would total around 200m, on top of the planned three-year capital spending budget of 2.2bn.

Joining the neighbourhood

Convenience stores are expected to show growth of 37 per cent over the next four years.

This compares to growth of 15 per cent for super-markets and a decline of 11 per cent in traditional retailing, according to IGD Research.

New research from Verdict has shown that neighbourhood and local stores are proving more resilient than larger supermarkets and hypermarkets.

"Local neighbourhood stores have become the first port of call as more consumers are shopping locally," said Simon Chinn, retail consultant at Verdict.

Morrisons is coming late to the market in an area where Tesco,

Sainsbury's and Marks & Spencer have carved themselves a highly successful niche in convenience retailing.

The growing number of single person households and the aging population is driving top-up shopping, while rising petrol prices are persuading people to shop locally and drive less fre-quently.

The supermarkets account for just six per cent of the convenience market so there is plenty of scope for growth.