Small is beautiful says Morrisons as it unveils convenience store push

MORRISONS, Britain's fourth-largest supermarket chain, is planning a push into the convenience store and e-commerce sectors, as it seeks to broaden its sales opportunities.

Dalton Philips revealed the country's fourth-biggest supermarket chain was planning to test the smaller store market Picture: PA

The group will test smaller stores and selling over the internet next year in a bid to boost its market share amid a tough retail market.

Morrisons, which currently runs 425 stores, estimated that higher petrol prices had cut the disposable income of its 11 million customers by an estimated 240 million in the first half.

Dalton Philips, the firm's recently-appointed chief executive, said he expected grocery market growth to remain subdued over the next 18 months, as higher fuel prices, taxes and unemployment limit retailers' ability to pass on rising commodity prices.

"Consumers continue to be under pressure," said Philips. "We expect a further period of low industry growth."

He was speaking after the group met forecasts with a 14 per cent rise in first-half underlying profits to 410m. However, the group saw its lowest level of growth in five years, with total sales up 5.8 per cent, while like-for-like sales rose just 0.9 per cent, down from 7.8 per cent in the same period last year.

Morrisons has outperformed its larger rivals, Tesco, Asda and Sainsbury's, in terms of sales growth over the past few years as it recovers from the botched acquisition of Safeway in 2004 and customers respond to its mix of low prices, fresh food counters and innovative promotions.

However, some analysts are concerned the turnaround has run its course and Morrisons lacks the diversity of its rivals, which have expanded into often faster-growing areas like non-food and online retailing, smaller stores and financial services.

Morrisons will open three convenience outlets, each less than 3,000sq ft in size, in the first half of 2011, but would not confirm their locations. Philips - who joined the group in March from Canadian grocer Loblaw following Marc Bolland's departure to Marks & Spencer - said the convenience market was growing at twice the rate of the overall grocery sector, and added that Morrisons planned to offer fresh produce in its new smaller stores.

The group also plans to trial selling groceries online in a limited, unspecified geographic region. "We need to understand the online market better," said Philips. "It's got to work for the customer, but it's got to work for the business too."

Neil Saunders, an analyst at Verdict Research, said Morrisons needed to move quickly, given that Tesco, Asda and Sainsbury's are already expanding rapidly into the smaller stores market.

Morrisons is also the only one of the "big four" grocers not to have a significant internet grocery business. However, Saunders said it was right to be cautious in its assault on the web.

"It's incredibly difficult to make a profit selling food online and Morrisons is right to take its time to investigate this area and find the right model," he said.

Morrisons added that early research showed its new television advertising campaign - in which inquisitive children ask questions about fresh food - had been "highly effective".

The supermarket ditched celebrities, such as Richard Hammond and Denise van Outen, in favour of the children, who are seen visiting farms and butchers.

It raised its interim dividend by 14 per cent to 1.23p a share.