Success of the M factor spurs Morrisons to step up openings

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Morrisons is to ramp up its convenience store opening programme with plans to open 50 stores by next year.

Following a successful trial of five stores, including the first M local convenience format in Ilkley, the Bradford-based grocer is to launch another 15 this year.

Half of these will be in London, which is seen as a key target as Morrisons is under-represented in the capital.

The London convenience stores will be supported by a bespoke 100,000 sq ft distribution centre in West London.

Morrisons is keen to cash in on the rapid growth of the convenience store sector, which is growing twice as fast as the rest of the UK retail sector.

Customers are cutting down on car usage amid high petrol prices and are spending less per shopping trip and only buying as much as they can carry home.

Unlike many of its rivals, Morrisons has promised not to hike up prices at its convenience stores and half of the space will be dedicated to fresh food and scratch cooking.

Chief executive Dalton Philips said the performance of its first five convenience stores has been “well ahead” of the group’s expectations and customer feedback has been very encouraging.

“Our convenience stores will have 50 per cent more fresh foods than our competitors – it’s a winning formula,” he said.

Morrisons hopes that its M local roll out will help fill some of the boarded up shops on Britain’s high streets.

“Undoubtedly, we can take over some of the empty stores on the high street,” said Mr Philips.

He was speaking yesterday as Morrisons reported first-half profits towards the top end of forecasts.

The group said it is on track to meet expectations for the year although it doesn’t expect to see any let-up in pressure on the consumer.

Morrisons made an underlying profit of £445m in the six months to July 29, up from £442m in the same period last year. This was above expectations of £416m to £450m.

Like-for-like sales, excluding petrol and VAT, fell 0.9 per cent, a slight improvement on the 1.0 per cent decline in the first quarter.

Total first-half sales rose 2.3 per cent to £8.9bn.

Latest industry data from Kantar Worldpanel shows Morrisons lagging the sales growth of its three big rivals as well as smaller players such as discounters Aldi and Lidl, although this is partly explained by Morrisons lower level of store openings.

In addition Morrisons hasn’t launched a food online offering yet and is only just embarking on its convenience store roll-out so sales from these two areas are yet to be added.

Mr Philips said that Morrisons will not launch an online food service unless he is convinced it will be profitable. Morrisons claims that its rivals are not making a profit on theirs.

“We see a lot of opportunity for food online.

“We’ll make a final decision next year, but we’ll only do it if it’s profitable,” said Mr Philips.

“We can’t have our customers subsidising online customers. We’re encouraged by what we’ve seen. It’s a market that’s growing.”

The group announced plans yesterday to trial online wine sales with the launch of Morrisons Cellar.

“This is a test. Wine is a strong area for us – it’s a £600m category. Wine lends well to being bought at home so it’s a good category to experiment on,” said Mr Philips.

Following strong sales increases at stores which are trialing its new Fresh Format, the group is to roll its market street concept out to 100 stores.

Trial stores have reported an impressive four to six per cent sales uplift.

“That’s a big number. We’re delighted with the progress,” said Mr Philips.

“Customer reaction has been fantastic.”

The group’s Fresh Format experiment has come in for criticism with some analysts saying traditional customers don’t want gimmicks such as fresh produce swathed in ice, but Mr Philips said the new stores have met with approval from across the board.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said “The Fresh Formats, convenience stores in London and online presence strands of the strategy are moving towards completion.

“There is little doubt that the landscape remains challenging in the sector.

“Morrisons is working hard to differentiate its offering – and not simply on price.”

Finance director Richard Pennycook said the group’s Yorkshire stores are generally performing well with areas around York and Harrogate reporting strong sales.