Morrisons could still shun online grocery

Morrisons CEO Dalton Philips has stood by his promise to shelve online grocery plans if it can’t develop a profitable model, despite analysts calls for the supermarket to accelerate its move into the fast growing online market to boost performance.

morrisons

The supermarket, which is currently the only one of the big four supermarkets not to offer online grocery, says that it is in the midst of developing an online grocery proposition following its extensive investigations into Fresh Direct, the New York based fresh food delivery network in which it bought a 10% stake last year.

It has had a senior management team based at Fresh Direct since acquiring its stake with the aim of analysing the business model and developing a framework that would suit an urban UK setting.

Morrisons is expected to launch an online grocery model in 2013, but speaking to analysts this morning at Morrisons’ half year results, Philips said: “The team brought back rich learnings and are currently developing a proposition … They came back really encouraged by Fresh Direct and we see a good opportunity in the market. It’s a £5bn market now and it will be £15bn but we stand by ‘if we cant do it profitably we won’t do it’.

“The team are working on a proposition now. I’m encouraged by Kiddicare and by what the team saw in New York … but it’s still to early to say we’re going to do it.”

The supermarket has been criticised in the past for its slow progress in this area. Ahead of this morning’s results presentation, Jonathan Pritchard, analyst at Oriel Securities, told The Telegraph that Morrisons’ lack of convenience stores and online business was “careless” as they present the two areas in which there is positive growth in the UK. He added that the supermarket’s efforts in these areas has been “cautious at best”.

Andrew Stevens, retail analyst at Verdict, says that Morrisons has been “left behind” by its relaxed approach to multichannel adding that the retailer appears “reluctant to take the leap of faith” into online which means it is missing a “real opportunity” to grow market share.

Morrisons has, however, today unveiled its first step into e-commerce beyond its acquisition of Kiddicare with the launch of Morrisons Cellar – an online wine delivery service, fuelling hopes that further online grocery model will soon launch.

Darren Shirley, an analyst at Shore Capital hailed the move as a “sensible building block” for future online expansion noting the clear shift in focus rival supermarkets are making away from space expansion towards online and convenience.

Philips was, however, quick to quell suggestions that plans for a new London distribution centre signalled that Morrisons could look to use this as a base for starting up grocery delivery around the capital.

He said: “We are ramping up our London offer as the year progresses, but can it do online? No, this depot won’t. It might be able to do bits and bobs [of online delivery] but it’s not configured that way. It will focus on c-stores.”

Philips added that online grocery is just one of many potential areas that Morrisons can capture growth, including Kiddicare, M Local and expanding its vertical integration.

The supermarket reported a 0.9% fall in like for like sales this morning for the first half of the year.

Pre-tax profit dipped to £440m, from £449m a year earlier.

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