Morrisons thinks small for a change in convenience move

Three years after he stepped down as chairman, however, Morrisons has had a change of heart. For a few minutes last week, thoughts of the supermarket industry space race were forgotten as chief executive Dalton Philips opened the chain’s first convenience store.

Its location is, of course, in Morrisons’ Yorkshire heartland. M-local, on the site of the former Bradford College building in Ilkley, is barely 14 miles from the Bradford headquarters. The spot was not chosen because it was a quick drive for the directors but because there was retail space available in a town with impeccable middle class credentials.

Morrisons wants to attract a wealthier audience than those who typically visit its city centre or out-of-town sites and it will launch more M-locals in the upmarket areas of Wilmslow in Cheshire and Upton Rocks near Widnes later this year.

They will be aimed at people who need to pick up a few items on their way to and from work. They will focus on good-quality food with fresh meat and fish delivered every day, as well as fresh bread, cakes, pastries, salads, coffee and juices, as Mr Philips explained.

“Our vision for the business is around around harnessing the three big differences in the business – the fact that we have got Market Street and nobody else does that; the fact we kept our craft skills in our stores – we have got more butchers bakers and fishmongers in Morrisons than all our competitors combined and the third factor is our vertical integration – we are the second largest fresh food manufacturer in the country.”

Morrisons will do this with a hub-and-spoke model, meaning local full-scale branches will provide the c-stores with daily deliveries. For the Ilkley store, this means a link to the Keighley store and the chain says any of its products ordered before 11am can be found by 5pm on the same day, from balsamic vinegar to a flatscreen television.

As impressive as this tactic appears to be – reproducing the speed normally associated with Mshopping online – it is on price that Mr Philips really wants to compete with Britain’s existing 50,000 convenience stores, where the demand for a local shop means customers normally face slightly higher prices.

Prices at Morrisons’ c-stores – as they are known in the industry – are designed to undercut those set up by rival supermarkets. Although they won’t abandon the controversial mark-up completely, their fresh products will undercut rivals by between four and 11 per cent.

“It is an incredibily different environment and the consumer is under huge pressure. The average household budget is about £100 lighter this year than it was last year principally because of fuel and VAT and some other utility costs,” said Mr Philips.

Morrisons says can save customers money because of production facilities such as Farmers’ Boy, its fresh food operation. It has also been helped by the low level of high street rents, which has created a vast choice of potential sites. Mr Philips remained coy about the prospect of rolling out the c-store model across Britain but if he wants to catch up with the competition – Tesco and J Sainsbury have long been in the market and Waitrose plans to open around 20 small shops in and around London – then it could hardly be a better time to snap up retail space.

“It is very easy to find sites at the moment when you see what is going on at the high street. Our property office has been inundated with locations (but) we are being very conservative. There will be sites available next year and the year after.”

There are currently seven million households in the UK that do not have easy access to a Morrisons and there are countless opportunities for upmarket c-stores in the South East. This is an area which the retailer has long had under consideration.

It only took four weeks for Morrisons to train staff for Ilkley and fit out the site, showing that perhaps a retailer once seen as slow-moving is today light on its feet. If so then it must be down to Mr Philips who has the boyish enthusiasm seen in another high street heavyweight, Sir Stuart Rose.

“We as a board talk about (being) different and better than ever – that manifests itself driving that top line, increasing efficiency and capturing growth,” Mr Philips said as showed journalists around Farmers’ Boy.

The opening of convenience stores might be a step Sir Ken never countenanced but, as Mr Philips will realise, it could bolster perception of the brand and provide a foothold in the South.

“There are 50,000 (convenience stores) out there and customers are saying ‘I want the right price, I want fresh, it has got to be convenient to get into and it has got to be in stock.’ If we can pull it off here, which I think we can, we’ve an opportunity to expand.”

Internet selling may be on way

Morrisons is examining plans for internet sales after paying £32m for a 10 per cent stake in online grocer FreshDirect earlier this year.

The New York firm is one of the few profitable online food operations in the world and Dalton Philips shed some light on the long-drawn out process which the deal involved.

“We wanted to transact online here in the UK and couldn’t find anybody who would offer us a route to profitability because we don’t recognise anybody making money here. We looked further afield and had 17 different consulting firms pitch to us. Lots of them could show on paper a route to profitability (but) none of them could show a company they had done it with. That’s how we ended up with our investment with FreshDirect because if you are looking for the best fresh food online retailer in the world all roads lead to FreshDirect.”