Morrisons stays quiet on extent of online launch

MORRISONS is to launch an online grocery business, but refused to say whether it will be nationwide or limited to within the M25 – the fastest growing area for the company.
Morrisons has admitted that its performance fell short of expectations after reporting a 7% drop in full-year profitsMorrisons has admitted that its performance fell short of expectations after reporting a 7% drop in full-year profits
Morrisons has admitted that its performance fell short of expectations after reporting a 7% drop in full-year profits

The Bradford-based firm said more details will be revealed later this year and the online operation will be up and running in 2014.

When Morrisons first mooted the idea of an online food operation exactly two years ago it said the business would be focused on London and the surrounding area as the company is massively under-represented in the capital.

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Yesterday Morrisons’ chief executive Dalton Philips refused to be drawn on whether the business will be nationwide or solely in London.

“We won’t say where we’ll start. There is a big opportunity for food online but we won’t say where it will be,” he said.

He cited commercial reasons for the lack of information.

Two years ago Morrisons bought a 10 per cent stake in highly regarded New York online grocer Fresh Direct for £32m.

As part of the deal, a top team from Morrisons has worked alongside the Fresh Direct team for the past two years learning how to run the operation.

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Yesterday Morrisons confirmed it is also in talks with online grocer Ocado. The two companies are looking at ways for Morrisons to tap into Ocado’s technology and operating expertise.

Mr Philips said that Morrisons’ online food offering is not dependent on the Ocado talks being successful.

He also insisted that the online grocery business will be profitable despite Ocado never making a pre-tax profit. It is not yet clear whether the new online grocery business will use the expertise of Ocado, Fresh Direct or Morrisons’ online baby care retailer Kiddicare, or a combination of the three.

Mr Philips said: “24 months ago I said we can’t ignore online food and I said we’d start exploring, We have investigated this market with Fresh Direct and Kiddicare. When we go online it will be truly distinctive. I feel very confident we can do this.”

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Morrisons is lagging its three bigger rivals Tesco, Asda and Sainsbury’s, which all have long standing online grocery operations. Online is growing at 16 per cent a year, and is expected to double in value over the next five years to £11bn.

Morrisons previously said it would only launch an online food business if it was certain it would be profitable. It has claimed its rivals’ online grocery operations do not make a profit – a claim they contest.

Analysts have blamed Morrisons’ lack of online food, as well as its late entry into the convenience stores market, for its recent sales underperformance.

Following the announcement, retail analyst Philip Dorgan at Panmure Gordon said: “Much needs to be done, but at least Morrisons has joined the party.”

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The group announced its plans yesterday alongside an expected fall in profits for the year to February 3. It made an underlying pre-tax profit of £901m, down from £935m in 2011.

Turnover rose three per cent to £18.1bn, but like-for-like sales fell 2.1 per cent compared with a 1.8 per cent gain in 2011.

“The sustained pressure on consumer spending was reflected in our like-for-like sales performance, which was not as good as it should have been,” admitted Mr Philips, who described the group’s performance as below the market and disappointing.

The group’s market share fell to 11.8 per cent in the 12 weeks to February 17, down from 12.4 per cent a year earlier, according to market researcher Kantar Worldpanel.

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In a bid to help reverse this trend, Morrisons has increased its investment in convenience stores. It said its first 12 ‘M local’ stores are performing well and it has recently bought 62 sites from the administrators of failed high street retailers Jessops, HMV and Blockbuster. It aims to open 100 convenience stores by the end of the year.

The firm is also revamping its traditional store estate with its Fresh Format roll-out, which has produced a four to six per cent increase in the 100 converted stores. A further 100 stores will be converted to Fresh Format this year.

Capital expenditure on each store will be reduced from £1.5m to £500,000 as the group learns from previous conversions.

Mr Philips said Morrisons needs to do a better job of telling customers about its 5,000 trained butchers, bakers and fishmongers.

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It has launched an advertising campaign featuring TV presenters Ant and Dec alongside real life in-store specialists. The Geordie duo are highlighting the traditional craft skills in store at Morrisons.

The group plans to invest about £1.1bn in the 2013-14 year, up from £1bn in 2012-13. The investment in new business channels has meant a scaling back of the target for new supermarket space to 0.5 million sq ft from 0.9 million sq ft.