Morrisons has taken a 10% stake in FreshDirect, a profitable American online grocer. The £32m investment is the first stage in Morrisons’ strategy to launch a UK online food operation, focusing on quality fresh food, inspirational ready meals, and customer service.
FreshDirect will also receive a minority interest in Morrisons’ planned online food launch, which will be in London. The Morrisons.com business will launch within two years, for both grocery and non-food products, the company has confirmed. Morrisons says it will be able to leverage its position as a major food manufacturer – the second largest in the UK - through the web channel.
The Bradford-based grocer currently has no home grocery service, but believes it can learn firsthand from FreshDirect how to build its own web offer, with an emphasis on locally-produced fish, meat and dairy goods, and freshly-prepared ready meals – endorsed by top chefs –as well as low cost delivery.
FreshDirect fulfils 45,000 orders per week with estimated sales in 2010 of $300m, up 20% on the previous year. It serves 600,000 customers in areas including Manhattan, Brooklyn, Staten Island, New Jersey, Connecticut, Westchester County and Nassau County, offering organic, local and sustainable produce. Its delivery charge is highly competitive and it operates multi temperature zones in its supply chain, according to the Institute of Grocery Distribution.
“We don’t believe anyone in the UK is offering a really credible fresh food offer online,” said Dalton Philips, chief executive at Morrisons, talking on BBC Breakfast. Asked whether investing in domestic fresh food specialist Ocado might have been a more logical step, Philips said: “FreshDirect are world leaders in fresh food online, and we believe the way they deliver fresh food so well at such good pricing makes them the best possible partner for us. That’s why we’ve taken this investment in them.”
Morrisons has reported pre-tax profit for the year ending January 30 of £874m, up from £858m the previous year. Sales were up 7% to £16.5bn and like-for-like sales were up 0.9%. The company has also recently announced the purchase of Kiddiecare.com, which will provide a vehicle for growth in non-food etailing. Another big development at Morrisons will be the roll-out of a new convenience store format to be called M Local.
Philips said: “Our plan to make Morrisons ‘Different and Better than Ever’ has great momentum, with store trials under way that are yielding exciting results, our first convenience store sites secured and important e-commerce investments in FreshDirect and kiddicare.com announced.”