On the money: Morrisons hints at online launch

Morrisons today (7 January) hinted that an announcement regarding its long-awaited launch into online retail could be nearing.

The supermarket operator, which earlier this morning booked a 2.5% drop in like-for-like sales in the quarter to 30 December, said revenues were hindered by the growing importance of online and convenience channels.

Speaking during a conference call, CEO Dalton Philips insisted that Morrisons small convenience footprint - it operates just 12 stores - and its lack of an online grocery presence are the "greatest headwinds" the retailer is facing.

Philips emphasised that Morrisons is working to develop its strategy of becoming a multi-format, multi-channel retailer, the bones of which were laid out in 2011.

"We have been very explicit in the strategy that we laid out only two years ago that we will become a multi-format, multi-channel retailer," Philips said. "We are a retailer that needs to be a more modern food retailer."

Philips said the company will update the market on the progress of this strategy - and what the next steps are - at its interim results. Significantly, he hinted the group could be gearing up to enter the online grocery space and added that Morrisons could even benefit from a "late mover advantage".

However, analysts have warned that this may not be the case. "The grocer has been excruciatingly slow to respond to emerging consumer shopping trends in food and grocery," Conlumino consultant Joseph Robinson said. "Convenience and online - while representing less profitable channels in the short term - are where the current growth spots predominately are in the market. The grocer is finally making some strides in these areas.... However, these developments have been slow, and Morrisons is playing catch up to rivals which are significantly more established in these areas."

Philips dismissed concerns that Morrisons has missed its chance to ride the online and convenience wave.

"We are not too late to the party. It [online] is still only 5% of the market, so we have not lost out in the long-term," he commented. "As a second mover you have the ability to look at the technology out there... we can talk to a lot of people, garner a lot of knowledge and when we come to our decision we will be... able to look at everybody else's and come up with something really special."

Morrisons management emphasised it has been active in developing its online capabilities by acquiring an online clothing retailer Kiddicare, a stake in US-based Fresh Direct and launching a wine website.

"In online we have made good inroads with Kiddicare... our equity stake in Fresh Direct has allowed us to spend all of 2012 studying the online market... This is the fastest growth area of the market and we are... excited by it," Phillips stressed.

Philips also confirmed that Morrisons intends to increase its convenience footprint in the coming year with the opening of 50 additional c-stores.

However, management added that it is "trading for today and building for tomorrow" by balancing the need to invest in longer-term strategic measures, such as the capital-intensive tasks of growing convenience and online, against the short-term imperative of generating returns for shareholders.

In order to shore-up sales in the short term, Philips suggested there were some "quick fixes" - namely improving its promotional strategy and communicating its points of difference to consumers.

To this end, the company has entered into a sponsorship deal with Britain's Got Talent hosts Ant and Dec, who will appear in Morrisons TV advertising. The company also announced today it has extended the role of Nick Collard to group marketing and customer director in a bid to strengthen its marketing team.

While management maintains that it needs to more effectively communicate its core message around freshness, craft skills and value, there are those that question whether this will have a positive impact on sales. Indeed, Shore Capital analysts suggested, the company's ranging initiatives and fresh focus have caused it to lose touch with its core consumer.

"We believe that the business has lost touch with some of its core customers but not attracted new ones, particularly as a result of some of the range reviews and arguably Fresh Formats to a degree," the analysts wrote in a note to investors.

However, Morrisons management remained upbeat on its continued appeal to loyal customers - arguing instead that it needs to focus its efforts on communicating its point of difference to so-called "float" consumers. The company maintained its positioning as a "food-focused, experiential" retailer was not at odds with its value orientation.

"You have to keep your eye on your core customer... I am confident we are doing a good job with our core customers," Philips insisted.