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Morrison Plans Convenience, Online Trials to Close Gap With Bigger Rivals
William Morrison Supermarkets Plc’s new Chief Executive Officer Dalton Philips plans to test convenience stores and online retailing as he seeks to close the gap with the U.K.’s three biggest supermarket chains.
Philips, commenting for the first time since he joined on March 29, said Morrison will introduce three trial convenience stores in the first half of 2011, and is “investigating the opportunities” for grocery sales on the Internet. The retailer today reported steady sales growth and higher first-half profit.
“Convenience is a significant market with great potential,” Philips said on a conference call. “The opportunity is there, but it’s an opportunity we need to understand better, so we will pursue a limited geographic trial in 2011.” He declined to comment on possible store locations.
Morrison, the smallest of the U.K.’s four main grocers, is aiming to capture market share with low-price products as rising unemployment and a squeeze on credit cause consumers to spend less. The company had 11.6 percent of U.K. supermarket spending in the 12 weeks ended Aug. 8, according to Kantar Worldpanel, compared with Tesco Plc’s 30.8 percent, Wal-Mart Stores Inc.’s Asda’s 16.9 percent and J Sainsbury Plc’s 16.1 percent.
“Morrison is felt to have more limited long-term growth opportunities, relative to its peers, and has not yet pursued the same growth drivers others have, such as non-food, on-line, multiple formats, financials and international,” Kate Calvert, an analyst at Seymour Pierce Ltd. in London, wrote in a note. “There is a danger that this update will fail to impress.”
Morrison fell as much as 4.4 percent in London trading, and was down 1.5 percent at 288.2 pence as of 9:38 a.m. local time.
‘Under Pressure’
The second half of the year is likely to see a continuation of “low market growth,” Morrison said. Increased commodity costs may lead to a “slight rise” in prices, according to the Bradford, England-based company, which said it expects to report profit in line with its own expectations for the year.
“We know that our customers are under pressure,” Philips said on the call. “We need to make sure we can help them save money.” Morrison plans to focus on keeping prices down during the second half of the year.
Underlying pretax profit climbed 14 percent to 410 million pounds ($633 million), the company said. That compared with the 408 million-pound average estimate of 14 analysts compiled by Bloomberg. Growth was “absolutely still ahead of the market” in the first half of the year, Morrison said.
Acquisitions?
Revenue rose 9.1 percent to 8.1 billion pounds, driven by sales at recently acquired stores. The company opened 43 outlets last year, including 34 acquired from the Co-Operative Group Ltd. Sales at stores open at least a year increased 0.9 percent, excluding gasoline and value-added tax.
Morrison may be “looking for opportunities to expand” through acquisitions, “if they can help us accelerate into the convenience market,” Philips said. “Until we’ve got the format absolutely right, we won’t know what the pace of expansion will be.” Convenience stores will be less than 3,000 square feet (278.7 square meters), the CEO said.
Online retailing will be considered provided it doesn’t have an impact on store sales, Philips said. “We’ve got 11 million customers, and we’re not about to charge them more to get people online,” the CEO said.
To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.
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