Morrisons invests £300m in overhauling '20th century systems'

The retailer is introducing initiatives such as the roll-out of tablets to shop staff to enable them to stock take electronically. At present Morrisons staff walk the aisles with clipboards making a note of items that need to be replenished.

Morrisons is also introducing a new electronic method of counting money in stores. At present staff do it by hand every night.

Speaking at a Morrisons strategy event in London today (July 11), Philips said: “We have plenty of smart people in this business but had an absence of smart technology.”

He added the lack of modern systems “even limit the promotions we can run” in stores and that “antiquated systems” had been a “major barrier” to Morrisons developing its convenience and online businesses.

However, Philips said the grocer is now “putting the right building blocks in place to make it fit for the future”. “It’s the most advanced rebuilding of retail systems anywhere in the world,” he maintained.

He said that Morrisons’ move into convenience and planned push into selling food online later this year means the grocer will “be able to compete on a level playing field for the first time”.

“By 2015 when all the work is finished we will be a truly national, multichannel, multiformat retailer,” said Philips.

He said Morrisons had opted to launch its convenience and online arms now because both channels represent such a big proportion of the food market, which means “defying gravity becomes a lot harder,” according to Philips.

“Any retail business needs to be where the growth is, and it was clear that we were not,” said Philips.

He said the tie-up with Ocado, which will handle Morrisons’ online distribution, has enabled the Bradford-based grocer to build the capacity of its rivals in an instant.

“Our experience is in retailing not technology,” said Philips. “We were a long way behind. Our competitors were first delivering in the 90s.”

Philips said Morrisons loses out on £500m every year when its customers shop online at a rival.

Morrisons is paying Ocado £30m over the 25 years of the contract to license the etailer’s technology and IP.

Philips defended the amount spent, saying it is much less than the investment by rivals into their online businesses. “It took our competition years to build this capacity”, he said. “It took decades for our competitors to make a profit. We’ll do it in four years.”

He added he was “confident” Morrisons’ online offer, which will launch by the end of the year, will “set new standards in online delivery”.

Morrisons’ convenience business is another key part of the grocer’s growth strategy, and it is trailing rivals Tesco and Sainsbury;s.

Philips said that Morrisons’ deal to acquire a rump of stores from administrators of HMV, Jessops and Blockbuster this year had been a “vital step” in expanding its M Local estate.

Morrisons will have 100 M Locals operating by the end of the year, and 300 in three years. The grocer is targeting London in particular, where it is underrepresented, and will open its first West End store in a fortnight on New Oxford Street.

Half of every M Local store is dedicated to fresh, which Philips said will set it apart from its rivals.

Morrisons is a business with “real strengths and opportunities ahead of us”, said Philips, observing that the grocer is not “saddled with hypermarkets”.

“They are white elephants, expensive to run, and don’t meet the needs of customers,” said Philips, who called the larger format store a “blip” in retail.

“The traditional size of a superstore is 38,000 sq ft of food. After that you’re just replicating lines,” he said.

While Philips did not rule out opening further supermarkets in areas Morrisons is underrepresented, he said the “rate of growth of large stores will decline”.

Morrisons, he said, is well positioned because it has always focused on food, and is therefore less exposed to non-food categories, which grocers including Tesco are scaling back on.

“Our decision to focus on food was right,” said Philips. “Our focus on quality and affordability is exactly right for these times.”

Philips said the industry faces “some real challenges” as retailers strive to adapt to changing shopping habits. “How people are shopping is changing,” he said. “Our customers are shopping five times a week.”

Morrisons is considering launching a loyalty scheme but has made no firm decision. “Our customers expect us to know about them, it’s an area we will look at,” said Philips. “It’s something we need to be mindful of.”