Blackfriar: Online or offline? Morrisons needs to make a decision

While both Tesco and Sainsbury’s have plans for more convenience stores, it looks as though the internet will be the main growth driver.

Yesterday Tesco reported strong growth in the online grocery business.

Website sales rose 11 per cent on last year as more and more people opt for the convenience of getting groceries delivered to the door.

It also avoids the expense of high petrol costs, a factor that is driving convenience store sales.

This move towards online and away from big store openings raises some interesting questions for Bradford-based number four player Morrisons.

Morrisons’ chief executive Dalton Philips has always maintained that none of his rivals’ online food offerings actually make a profit.

When challenged on this yesterday, Tesco’s chief executive Philip Clarke insisted that the group’s online food sales are profitable although he declined to break down just how profitable they are. Morrisons is also scaling back plans for new store space as it gears up for the long-awaited launch of an internet shopping business.

Last month the group announced plans to take its first steps into online grocery, starting with a new Morrisons Cellar wine range.

Wine is a good place to start as the category lends itself well to home delivery, although it won’t provide the challenges of a fresh food offering.

Mr Philips has said that Morrisons will not launch an online food service unless he is convinced it will be profitable.

“We see a lot of opportunity for food online,” he said.

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

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

Morrisons will be a late entrant to the online shopping market and has just sent a team to New York in order to learn from US food delivery business Fresh Direct, in which it acquired a 10 per cent stake last year.

With rivals Tesco and Sainsbury’s both increasing their online presence, Morrisons needs to make a move into this market soon if it is to compete.

Whether it can make a profit also remains to be seen.

The repercussions from the banking sector’s moral crisis are starting to deliver some long-overdue benefits to building societies.

New figures from the Building Societies Association show gross mortgage lending in August was £3bn – up 40 per cent on a year ago.

They are now writing almost one in four mortgages, up from 16 per cent a year ago.

In the first eight months of the year, mutuals took a 21 per cent share of mortgage lending.

Deposits or retail savings balances rose by £1.16bn in August, compared with an increase of £393m in the same month last year.

BSA director-general Adrian Coles said: “With consumer price inflation on a downwards trend, the pressure on household finances eased somewhat allowing more money to be saved.

“The changes in deposits may also reflect consumers switching their accounts over to mutuals over the past two months as people opt for better service and a more ethical way of banking.”

The LIBOR rate-rigging scandal, NatWest’s computer meltdown, hefty bonuses and various mis-selling controversies appear to be driving customers to the customer-owned lenders.

Their increasing ability to source funds from the wholesale money markets and state-backed schemes means they are able to funding this appetite for loans.

Mr Coles adds that of the initial 13 firms signed up to the Bank of England’s Funding for Lending Scheme, six are building societies.

He expect more building societies to sign up in coming months, but warned it will take some time for the funds drawn from the scheme to feed into new lending.

Banks have much to learn from their mutual cousins, and these figures appear to show customers voting with their feet.

Building societies are not owned by shareholders and their raison d’être is not to increase profits to boost investor returns, but to serve their members.

This strikes a chord among consumers fed up with discredited banks.

But it is one thing to lure a new customer with an attractive mortgage rate.

The real test is if building societies are really persuading customers to switch their current accounts in their droves.

If this is to be a permanent change, building societies must capitalise on this surge in new business and banking antipathy to break the account-switching inertia.