Morrisons has reported a rise in annual profits and taken a 10% stake in US online grocer FreshDirect to help it build its online food offer in the UK.

Morrisons has reported pre-tax profit for the year ending January 30 of £874m, up from £858m the previous year. Sales were up 7% to £16.5bn and like-for-like sales were up 0.9%.

It will deliver a £1bn equity return over two years and has made a commitment to double-digit dividend growth over the next three years.

The Bradford-based grocer has taken a 10% stake in FreshDirect, a profitable online grocer serving customers in New York, New Jersey and Connecticut for £32m. FreshDirect will also receive a minority interest in Morrisons’ planned online food launch, which will be in London.

Morrisons said FreshDirect has an emphasis on fresh food, provenance and service, like Morrisons. Chief executive Dalton Philips said: “I have seen retailers all over the world. Few have inspired me as much as the team at FreshDirect, a highly successful and profitable food retailer with a track record of terrific customer service.

“What we learn from FreshDirect will be invaluable as we plan our own profitable e-commerce business for the UK.”

Philips will join the FreshDirect board and Morrisons will embed a team in its Long Island City facility to learn about its ecommerce model.

It is expecting to launch within two years, for both grocery and non-food products.

Alongside FreshDirect, it also bought online baby products etailer Kiddicare last month. The purchase of Kiddicare has also now been fully completed.

Morrisons said it is trialling new concepts to push its point of difference in fresh foods, and it has also set up a separate management structure to oversee its £6bn own label business. One of the trials is in Kirkstall, which Retail Week visited late last month.

It is expecting to open 2.5 million sq ft of space in the next three years, plus it will make more space in stores through its Liberate project.

Morrisons has confirmed that its convenience stores will be called M Local and it has identified trial locations, the first of which will be in July. They are in the M62 corridor.

Morrisons does expect this year to be tough, anticipating a similar level of low growth across the sector.

Philips said: “2010 was a year of solid performance in the business, whilst we reshaped the top team and began a series of initiatives and investments to drive the business forward. Our plan to make Morrisons “Different and Better than Ever” has great momentum, with store trials under way that are yielding exciting results, our first convenience store sites secured and important e-commerce investments in FreshDirect and announced.”

Who is FreshDirect?

FreshDirect was set up in 1999, and made its first delivery in 2002. It operates out of a 300,000 sq ft facility in Long Island, New York. It was set up by two former investment bankers.

It carries out 45,000 orders per week with estimated sales in 2010 of $300m, up 20%.

It serves 600,000 customers in areas including Manhattan, Brooklyn, Staten Island, New Jersey, Connecticut, Westchester County and Nassau County.

FreshDirect sources directly from farms, dairies and fisheries in the surrounding area. Daily orders are processed each evening before being sent to the kitchen, bakery, deli, fresh storage and produce ripening rooms, and production areas within the etailer’s refirdgeration facility.

Customised orders are cut, packaged, weighed and priced, before being transported to a sorting area where dry goods or frozen foods are added. Boxes are then sealed and transported.

It offers organic, local and sustainable produce and operates multi temperature zones.

It has a daily product ratings system which allows managers to rate the quality of the fresh produce with items scored and shared with customers on its website. 90% of customers are said to use the ‘Daily Quality Ratings’ tool to help in purchasing decisions.

It also has a low delivery charge, said to be 30% lower than the typical US model and a small minimum basket.

Customers can choose 600 ready prepared meals on the site, prepared daily in its kichen with input from New York’s most established chefs, such as Terrance Brennan.

Source: IGD