Morrisons, the UK’s fourth-biggest grocer, has said talks with online grocer Ocado on a possible tie-up were continuing as it reported a slowdown in the pace of recent sales falls.
The retailer, which trails market leader Tesco, Wal-Mart’s Asda and Sainsbury’s in UK market share, said sales at stores open more than a year fell 1.8 per cent in the last quarter.
That was slightly better than average forecasts from analysts of a 2 per cent fall and also an improvement on a fourth-quarter decline of 4.1 per cent.
The grocer said plans to launch an online food operation by January 2014 were “progressing” but chief executive Dalton Philips admitted that the supermarket was two decades behind its competitors who have had an internet presence since the 1990s.
He said the latest quarter’s performance reflected a “steady improvement” from the previous three months and that the Bradford-based chain had made a solid start to the new financial year.
“Our promotions have been more innovative and we are explaining Morrisons points of difference more effectively,” he said.
Philips said the horsemeat scandal had boosted customer recognition that the company’s supply chain arrangement meant it was “best placed to sell food that is what it says it is”.
Philips added: “Strategically, our ambition of building a genuinely multi-format, multi-channel Morrisons is right on track.”
The supermarket operator said that while it remained “cautious” about the economic outlook and consumer spending, full-year expectations were unchanged.
The firm has been held back by its limited exposure to convenience stores and lack of an online food offer. These are the two fastest growing areas for UK supermarkets as shopping habits change, with consumers increasingly using the internet to shop and high fuel prices discouraging trips to town centres and out-of-town sites.
Morrisons has accelerated investment in convenience stores, targeting 100 by the end of the year but analysts warned it still faced major challenges.
John Ibbotson, director of retail consultancy Retail Vision, said Morrisons was being “consistently outpaced” by rivals Tesco, Asda and Sainsbury’s while losing customers to discount chains Aldi and Lidl in its northern heartlands.
Richard Hunter, head of equities at Hargreaves Lansdown, said investors continued to “head for the exit” despite some signs of optimism.
He said: “Morrisons is making slow, grinding progress, but time is not on its side. The company is something of a laggard in the increasingly important twin strategies of online and the convenience store format.
“Indeed, whilst rivals continue to hone their online offerings and increase their focus on convenience stores, Morrisons is playing catch-up and this will be an increasingly difficult gap to close.”
On Wednesday rival Sainsbury’s reported a 6.2 per cent rise in annual profits.
Asda is due to update on its first quarter trading next Thursday. Shares in Morrisons closed down 8p at 288.4p.