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September 8, 2011

On the money: Morrisons thrives in weak UK economy

The challenging economic conditions and low consumer confidence in the UK is "playing to our strengths", Morrisons chief executive Dalton Philips said today (8 September).

By Dean Best

The challenging economic conditions and low consumer confidence in the UK is “playing to our strengths”, Morrisons chief executive Dalton Philips said today (8 September).

Philips said consumer sentiment in the UK was at its “worst in a generation”, with a new “professionalism” in how shoppers buy food.

However, after Morrisons reported an increase in half-year sales and profits, Philips said the UK’s fourth-largest retailer had been able to meet consumers’ needs.

“Consumer confidence is almost as low as it has ever been,” Philips said. “There’s a growing professionalism in people’s approach to shopping. People used to spend around a budget. Now they shop to a budget. This more professional approach to shopping plays to our strengths.”

According to analysts, Morrisons had performed better than its rivals in the first half of the year. “Morrisons has delivered a resilient performance in our view, outperforming in revenue growth terms on a like-for-like (LFL) basis its superstore peers with in-store (ex-VAT) growth of 2.2%, a commendable achievement,” Shore Capital analyst Clive Black said.

Philips also provided an update on Morrisons’ recent initiatives, designed, he said, to make the retailer “different and better than ever”.

Morrisons, which has long flagged its fresh food as a point of difference from its rivals, wants to “remain unbeaten on fresh”. Philips said the introduction of different products and changes to how the departments operated and looked in-store had led, for example, to its produce and fish sales both increasing 13% between May and August.

Two initiatives closely watched by City and retail analysts have been Morrisons’ recent move to open convenience stores and to develop an online service.

Morrisons has already opened two M-local convenience stores in the north of England and a third outlet will open next month. Philips said the retailer had plans for more M-local shops in its current financial year. “We will test two or three more in this financial year,” he said.

Philips said the M-local stores was selling fresh food at the same price as Morrisons’ larger outlets, although he conceded that once other departments were included, the “whole basket” was 3.5% higher. However, he said Morrisons’ rivals charged 4-8% more in their convenience stores.

The Morrisons chief reiterated that the retailer plans to start selling non-food items online next year and indicated that it could launch a food service in 2013.

Earlier today, Morrisons appointed former Apple executive Simon Thompson as MD for food for Thompson will lead a team of Morrisons executives currently in New York analysing the operations of FreshDirect, the US online food retailer in which it acquired a 10% stake in March.

Morrisons is the only one of the UK’s four largest grocers not to sell food online. However, Philips insisted the retailer would not suffer from being later to the market and said it would benefit from evaluating FreshDirect’s operations.

“We will have a distinct advantage in coming in late,” Philips said. “FreshDirect is the best fresh food online retailer in the world and it makes real money. Others have been doing this for ten years [and] the profitability on food online in the UK is zero.”

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