Morrisons laid out plans for a new convenience and online push this morning despite a fall in like-for-like sales in the first half of the year. Chief executive Dalton Philips and finance director Richard Pennycook explained the grocer’s plans to Retail Week
Retail Week: Trading has undoubtedly been tough but your competitors appear to be growing at a faster rate, why is that?
Dalton Philips: You have to look at the two year impact to get a true picture. Our competitors report their convenience and online sales so you’re not comparing like with like. Our total sales are up, as is our underlying profit so we’re feeling pretty confident.
Why did you decide to launch your first Morrisons-branded online offer in wine?
DP: We have a strategy online with general merchandise, we have a strong beachhead with Kiddicare which is growing strongly and will be sharing their warehouse. We have a lot of confidence in wine, it’s a good standalone category to launch a site around, it’s an emotionally engaging category. We already sell £600m of wine and this is an opportunity to test the concept pre-Christmas. It will be a home delivery offer, there’s not much demand for click and collect on wine as it’s bulky.
And how are plans for an online grocery offer progressing?
DP: The team has come back from the States working with Fresh Direct to find a profitable proposition – people don’t make money with online grocery in the UK. Fresh Direct’s strength is assortment, pricing and service. Customer interaction will be key.
You are going to launch a new kids clothing brand, Nutmeg, in store – what form will that take and how will you support it?
DP: Nutmeg has connotations of fresh food which ties in with our overall strategy. It will be affordable fashion and basics, this is a great opportunity. We will be opening an office in Leicester to support it. We are going to need a sizeable team and will be recruiting new staff and bringing some over from Morrisons.
What do you say to criticism from Sir Ken Morrison that the new Fresh Format could be too upmarket for Morrisons customers?
DP: We are confident in the format - converted stores are trading 4-6% up on control stores. I’m feeling great about it, it’s a progression from Market Street, it brings the high street into stores. We take the views of customers and shareholders very seriously.
Richard Pennycook: We are investing in the format because we have confidence in it.
Why have you decided to slow space growth?
RP: We are balancing our overall investment with our online and convenience ambitions. We have got a big programme of investment, including in the new Kiddicare stores, and we are rephasing our plans for space growth so we complete in July 2014, rather than January.
How will you evolve the Fresh Format concept?
DP: We will tailor the stores to the individual locations, some will have a bigger florist, some a bigger world food section and some an extended butchers.
Have you now entered the voucher war with your new voucher at till scheme? Does this open up the possibility of a loyalty card offer?
DP: It’s good to have the infrastructure in place. I do not see us ever having a loyalty card offer in the traditional model because that’s past its sell by date. But it does allow us to look at various loyalty programmes. This gives us intelligent vouchers at point of purchase, if you buy cereal without milk we can give you a voucher for milk.
RP: Vouchers come in many guises. Our vouchers and fuel deals are smart ways to reward customers. Vouchers in newspapers are far less targeted.
Do you need to find a more effective price promotion than the Great British Price Crunch and the like?
DP: It was a good promotion we ran over the summer. If you go into store now there’s a lot of point of sale about £1 and 50p offers, that’s where our focus is.