Morrisons today looked to online and convenience stores for its future growth, as it unveiled half-year results showing static sales and falling profits.
In its results statement, the supermarket said: “We believe that, given the structural changes that are taking place in the UK grocery market our future top-line growth will be driven principally through our online and convenience channels, both of which are relatively capital-light compared to developing supermarket space.”
Reporting sales that were flat at £8.9bn in the six months to August 4 compared to the same period last year, Morrisons forecast that its expansion into convenience stores – set to number 100 by the end of the year – and online food deliveries would increase the size of its potential market by 40%.
That online food delivery service is on schedule to launch by the end of January 2014, earlier, it said, than would have been possible had it developed its online capabilities in-house. Instead, it has invested £216m in going online via the acquisition of Ocado’s customer fulfillment centre in Dordon, and integrating with the online grocer’s distribution systems.
“By the end of this financial year, using the best technology and logistics in the sector and utilizing our unique craft skills and manufacturing capability, we will be delivering a truly differentiated Morrisons’ offer right to our customers’ front doors,” the company said in the statement.
Morrisons’ chief executive Dalton Philips said its strategy for growth in convenience and online was now set.
“In parallel, we’ve been working at pace on our online offer; the final pillar of our strategy,” he said. “Morrisons.com will be making home deliveries of our great fresh food by the end of January 2014, supported through our long-term service agreement with Ocado.”
The company reported pre-tax profits of £344m, down from £440m at the same time last year, following costs including the write-off of £27m of investment in developing the online business. It said that while early indications of a recovery in the UK economy were encouraging, “we are yet to see this impact on consumers’ pockets.”
However, it anticipated that its sales performance would improve during the second half of the year. “Our strategic initiatives are laying the foundations for good progress in the year to January 2015 and beyond,” it said, forecasting faster growth in online than any other channel as hard-pressed customers shop online both to stick to budgets and to reduce spending on fuel.
It also said it would reduce its commitment to new supermarket space in the future, halving its growth rate to 350,000 sq ft a year from 2014-15.
Meanwhile its business partner Ocado reported its own year-on-year sales growth of 16.4% in the 12 weeks to August 12 to £189.2m, while average weekly orders grew by 15.3% to £138,889 and the average order size grew by a marginal 1% to £113.54 from £112.44 last year.
In today’s interim management statement, it said the agreement with Morrisons had completed, as had the sale and leaseback of its Dordon CFC.
Tim Steiner, chief executive of Ocado, said: “We are encouraged by the continuing momentum in sales growth, reflecting an increase in both orders and basket size. We remain focused on improving the proposition to customers to make it easier for customers to shop at Ocado, from an ever wider range and at competitive prices. This should support further growth as the demand for online grocery shopping continues.”