Morrisons CEO Dalton Philips has claimed he believes none of the retailer’s rivals in the UK have “cracked fresh food online” or “managed to create a significant point of difference”.
Philips made the claims as Morrisons, which has yet to launch an online food service, today (10 March) announced its purchase of an approximately 10% stake in US online grocer FreshDirect as part of its plans to develop an online grocery offer in the UK.
The Morrisons boss said FreshDirect offers a “distinctive fresh experience” and he claimed he had “not seen a more profitable example of an online grocery retailer in the world”.
The deal will mean that Morrisons, the UK’s number four grocer, will send a team to the US to learn more about FreshDirect’s “profitable model”.
Philips said the US company ties in well with Morrisons’ offer as some 50% of its SKUs are fresh, it works with primary producers and because it offers “bespoke meals” where customers can specify their specific needs – for example the thickness of their steaks – much in the same way that the UK retailer does in-store.
Philips emphasised that the operations would be “profitable”, and would run a “much less capex-intensive model” than its competitors, adding that it would be “less automated than Ocado”.
While Philips and CFO Richard Pennycook said Morrisons will have access to how the business runs, the retailer will develop its online platform in the UK.
Pennycook emphasised that the retailer would be capable of developing its own online platform saying: “We don’t need access to the software code”, highlighting how the differences in currency, taxation, and geographic location would mean that it would be easier to set up its own platform.
The retailer plans to launch its operations in London, but Philips said that “if the model can work [profitably] across the UK, we will [launch it]”.
Industry watchers have questioned the drivers behind launching its online operations in London, given the high levels of competition in online grocery. Nevertheless, he told just-food that the reasons behind launching the online offer in the UK’s capital is because the “cannibalisation in London is zero” and that this offers “powerful economics” for the service.
The move however, will mean that the retailer delays its entry into the sector for another two years, pushing back previously announced plans to begin testing an online offer this year.
When Morrisons was considering its move online, it spoke to some 17 consulting firms, but Philips said: “They all pitched to us about how they could move us online and the question we asked each and every one of them, is which of those you have worked with is profitable today? And you can imagine what their answer was, because we don’t believe that anyone is profitable in the UK online today.”