Morrisons ramps up online spending as sales slow

Morrisons is hoping investments in ecommerce and new convenience stores will prop up its slowing sales growth...

by Emma Haslett
Last Updated: 06 Nov 2012
Morrison released its preliminary results for 2010 today, and although profit and tunrover were both up, its sales growth has been relatively unimpressive: just 0.9%, down from 6% in the previous year. So you can see why CEO Dalton Philips thinks now is the time to explore other avenues, including online: he's just spent £32m buying a 10% stake in New York-based online grocer FreshDirect, which he describes as the ‘finest online fresh food retailer in the world'. Apparently he intends to 'embed a team there, take back the learnings and apply them in the UK’. It's a sensible approach - but is Morrisons coming too late to the online party?

If you're not familiar with FreshDirect, think Ocado, servicing New York’s affluent suburbs. But unlike Ocado (well, until recently perhaps) it turns a healthy profit; in fact, says Phillips, it’s the only company in the world that has ‘cracked the online fresh food market’. It’s also Morrisons’ second investment in ecommerce recently, after it spent £70m buying online baby products retailer in February. So you can see the plan: to use its ‘learnings’ from the US to build on Kiddicare’s infrastructure (which includes a high-tech warehouse) and then launch its own online offering later this year.

Sluggish sales growth aside, the company’s figures were perfectly respectable: turnover rose by 7% to £16.5bn, while pre-tax profits were up to £874m, from £858m last year. Higher oil prices boosted petrol sales by 18%, meaning its total turnover from petrol and diesel was up by over £530m. There is a downside to this, though: Phillips warned that customers are being squeezed by both oil prices and surging food costs, which means the average customer ‘probably has £100 less each month’ than they did last year.

As part of an effort to combat that, the supermarket has also announced plans to move into the convenience store market, with three small stores opening this year. The idea is to capture the smaller shop - but this is another format where some of its competitors have a big head-start.

But while Morrisons is flashing the cash, some of its shareholders clearly want a bigger piece of the action: they're asking the supermarket to commit to double-digit divi growth over the next three years. That might be optimistic - but Morrisons has promised to buy back £1bn of shares over the next two years, which should at least give them a bit more cash back in the short term.

The longer term question, however, is whether this move into new formats will help boost Morrison's sales growth. The trouble is that it's coming to both of these markets quite late, and will be squaring up to some fierce competition. We can only assume it's banking on the 'slow and steady wins the race' principle...

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