Morrisons raises online stakes

Morrisons CEO Dalton Philips with a delivery van
Morrisons CEO Dalton Philips with a delivery van
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Morrisons will launch online food deliveries in its Yorkshire heartlands in February, using its partner Ocado’s delivery spoke in Birstall to launch the service in Leeds and Bradford.

Its next focus will be on North Yorkshire around Harrogate and York as it taps into the wealthier areas of the county.

It will then launch in South Yorkshire and London in the middle of the year.

Following a launch later in the year in the North West, it will reach 50 per cent of UK households, some 13 million families, by January 2015.

Morrisons shoppers will be able to log on via Facebook and a new deal with means they can download their favourites from Tesco, Sainsbury’s or Asda.

The shopping list will include customers’ usual branded goods and own brand goods will be substituted with the Morrisons’ equivalent.

Other initiatives include one-hour delivery slots, texts to say the name and licence plate of the driver and the promise of low substitutions as goods will be sourced from depots rather than the closest store.

Customer service will be the top priority and customers can turn down fresh goods they don’t like the look of and receive a full refund and a voucher for the price of the goods.

Asked if customers would abuse this by ordering things they don’t want, Morrisons’ chief executive Dalton Philips said: “Customers are inherently honest so we’re making it easy for them. We’ve offered refund and replacement in stores and the number of customers who bring back goods is really tiny.”

Morrisons is factoring in extra time for customers to check their fresh groceries to check that they like the look of them and if they don’t the driver will take them away.

Morrisons’ managing director for food online Simon Thompson said: “The doorstep experience is crucial. It’s often the only human interaction our customers will have using this service.”

Mr Philips admitted that this will mean fewer deliveries per hour.

“That’s a service we’ve decided to offer. It builds trust. If customers want that service we’ll wait,” he said.

He added that all drivers will be trained to give a top level of service.

Morrisons will offer a three-tier pricing structure. It will cost £1 for morning or lunchtime deliveries, £3 for later in the day and £5 for evenings.

The grocer will supply different coloured bags to differentiate food destined for the fridge, the freezer or the cupboard. Drivers will also offer to carry bags to the kitchen.

Mr Thompson said the website will feature an animated butcher who will cut your steak to the exact width you want.

“It’s just like being in a store,” he said.

“It’s not a flat, mundane experience. You see the virtual butcher slice the meat. Customers like the online theatre. It makes the experience fun.”

Mr Thompson said Morrisons plans to have a very low level of substitutions as it will source products from distribution centres rather than physical stores.

“Most of our rivals pick from stores where there are gaps on shelves,” he said.

The vans will be yellow and highly visible, bearing logos such as ‘No courgettes kept in the van overnight’ and ‘Honk if you love rhubarb’.

The website will have a star rating so shoppers will be able to see the quality of the food, with vegetables and fruit that are in season getting a higher score.

Mr Philips admitted that Morrisons is late to the online market, but said it “wasn’t too late”.

“We’ve used the time wisely to learn from others – Ocado and FreshDirect (its partner in New York). It’s something that’s genuinely different.

“It’s a proposition that’s worth the wait,” he said.

“By allowing customers to import their favourites with one click we’re bringing switching to online shopping.”

Morrisons predicts that the service will be profitable in its fourth year and profitable at the EBITDA level in its third year.

“Ocado has a very sophisticated fulfilment system and delivery system. They are really great at that and we’re really great at fresh food. We can really take on the other big retailers,” said Mr Philips.

Morrisons has signed a 25-year deal with Ocado to acquire its Warwickshire distribution centre and use its technology for £170m. Ocado’s sophisticated systems will allow shoppers to see best-before dates and product availability before they order.

Asked how Ocado feels about Morrisons’ importing its customers, Mr Philips said there wasn’t much crossover and Morrisons will be competing far more with its big three rivals.

“We’ve got a value based consumer who is watching every penny,” he said.

Analysts at Jefferies wrote in a note: “Morrisons’ ambition to go from presence to an industry leading offer was comprehensively laid out. The pairing of Ocado’s superior service levels and Morrisons’ fresh leadership look convincingly packaged in the customer interface and should plug a major growth shortfall at Morrisons.

“With first deliveries due on January 10, we now look for a strong execution of a very robust plan.”