Morrison Plans More Convenience Stores After Profit Gains

William Morrison Supermarkets Plc (MRW), the smallest of the U.K.’s four main grocers, reported an 8 percent gain in full-year profit and said it plans to open more convenience stores and expand a revamped fresh food concept.

Underlying pretax profit rose to 935 million pounds ($1.47 billion) in the fiscal year ended Jan. 29, the Bradford, England-based company said in a statement today. The average estimate of 21 analysts compiled by Bloomberg was for profit of 922 million pounds. William Morrison raised its dividend 11 percent to 10.7 pence.

The grocer said it will open as many as 20 M Local convenience stores this year and 50 next year along with its new fresh-food layout, which includes food counters, flowers and 350 more fruit and vegetable items. A focus on matching competitors’ prices, coupon offers and its Fuel Britannia promotions have helped sales this year.

“Morrisons’s finals look strong,” and its growth initiatives are “taking shape,” according to Jefferies International analyst James Grzinic, who has a “buy” rating.

Morrison rose as much as 3.7 percent in early London trading. The stock was 2.8 percent higher at 292.80 pence at 9:15 a.m., paring this year’s decline to 10 percent.

Fresh Labs

The retailer spent a year testing three convenience outlets and so-called “fresh labs” in supermarkets across northern England.

“We know that 2012 will be tough,” Chief Executive Officer Dalton Philips said in the statement.

The company increased its budget for this year’s capital expenditure to 1.2 billion pounds from 1 billion pounds, Finance Director Richard Pennycook said. William Morrison plans to expand online and convenience spending by 100 million pounds and it’s carrying over another 100 million pounds it underspent last year. The “majority of the spending will be on new stores,” he added.

The fresh food concept, which includes in-store pizza preparation, seafood counters and more space dedicated to fresh produce, will be available in 15 percent of stores by the end of the first half, the CEO said, estimating the cost of converting each store at an average of about 1.7 million pounds.

‘Totally Different’

Philips said he is confident with its new format even as larger competitor Tesco Plc promises to invest hundreds of millions of pounds in 20,000 new employees, improved service and fresh food.

“The key thing is the fresh format,” Philips said. “These do fresh in a totally different way. We’re taking that further with these new stores.”

The grocer wouldn’t rule out adding to its three convenience outlets via acquisitions.

“This is a fragmented market and there’s nearly 50,000 convenience stores out there and mainly in independent hands, and we’re doing something very different,” the CEO said. “We’ve got 40 percent more space dedicated to fresh than you see elsewhere in the market and what we’re saying is convenience doesn’t have to be compromised.”

Non-food categories at Morrisons.com will be introduced in the fourth-quarter, though an online grocery offer is still being studied. The grocer will give a further update toward the end of the current financial year, Pennycook said.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net

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