As Morrisons boss Dalton Philips prepares to update the City, Jennifer Creevy visits the Leeds ‘lab store’ to reveal the direction he is taking the grocer in
In less than two weeks’ time, Morrisons chief executive Dalton Philips will flesh out his strategy for the grocer.
Having whetted the City’s appetite last September with his initial review of Morrisons, he has remained pretty quiet about strategy since. But last week’s surprise acquisition of online baby products retailer Kiddicare shows that Philips and his team have been quietly beavering away in the Bradford head office.
Online and non-food were both areas that Philips had said he would explore - and Kiddicare gives opportunity for both - alongside convenience stores, and he is expected to update on his work in those fields on March 10.
Philips also talked about changes to the core business. Through a series of “labs”, he said Morrisons would explore new opportunities in fresh food, store modernisation, service, own-brands, productivity and space optimisation. Last week, he told store managers at the retailer’s national conference that Morrisons’ number one objective for 2011 is to take the best results from the labs to deliver a “store of the future”.
One of Philips’ test labs is Morrisons’ store in Kirkstall, Leeds, just a stone’s throw from head office. Several initiatives are being tested there that could be rolled out to the rest of the estate. Retail Week had a look around the Kirkstall shop to get a glimpse into Philips’ thinking, reveal the first pictures of the trial and find out what other surprises he might have up his sleeve.
Kirkstall was chosen because it is “neither affluent nor a low demographic and has a big student population”, says Morrisons group commercial director Richard Hodgson.
He says that lessons learned from Kirkstall, along with the other lab stores of York and Shrewsbury, will be brought together to create a store of the future. It is hoped the store will open later this year.
The Kirkstall trials centre on the fresh food offer. Philips said last September that fresh food is at the heart of Morrisons. Emphasising the grocer’s vertical integration with its own farms, abattoirs and 4,000 qualified butchers, bakers and fishmongers, he said that is what makes Morrisons unique and he wanted to build on it.
The Kirkstall store shows just how key fresh food is to the future strategy. The fresh produce section is wide and open-plan, with items displayed on tables rather than the usual barrows to give a cleaner feel.
More of the fresh fruit and vegetables are loose compared with a traditional store, and some are displayed on tables of ice to keep them fresh. Morrisons is also guiding its customers through the changes with explanatory signage along the way, such as, ‘Veg on the rocks. Our specially designed ice beds help our vegetables stay in the best possible condition for you’.
Other innovations in the fresh aisle include a Fresh 2 Go salad bar - substantially bigger than in a traditional shop - an olive bar, freshly squeezed orange juice and a wider selection of more exotic fruits and vegetables.
Hodgson reveals each of the trials in Kirkstall have shown “massive sales uplifts”. He says: “Kirkstall is measured against control stores, and it is up in every food category.
“Even things like the olive bar have been phenomenal. Some people said Morrisons is only a meat pie retailer, but the success of the olive bar means it will now definitely be part of our store of the future.”
Kantar Worldpanel director of retail insights Bryan Roberts says fresh is a key part of the Morrisons brand, and getting that right in stores should be a priority. He says: “There have been calls for Morrisons to look into areas such as online to create new growth avenues, but online will only be a tiny part of their business, so the store experience is key.
“Trials such as Kirkstall show the fresh food fantastically well, emphasising the quality as well as service, so if this can be rolled out to all the stores, it should go some way towards being known as the best supermarket for fresh.”
Like his predecessor Marc Bolland, Philips sees the strength of being able to follow Morrisons’ produce from field to fork as another key driver of the business, as emphasised in its famous Market Street offer. Philips believes the fresh focus makes Morrisons different to its competitors, as well as ensuring it can offer better value to customers. Bolland went some way to opening up the back of the Market Street counters so shoppers could see the butchers or fishmongers in action, and Philips has opened things up even more.
He has introduced services such as fresh sausage-making in-store and has installed tongue-in-cheek signs bearing messages such as, ‘Only the Best Butchers in Yorkshire beyond this point’.
The fresh emphasis will also form part of Philips’ work on own-label. Morrisons’ own-label to branded mix is about 45% to 55% respectively and, for its main competitors, it is the reverse.
Philips has said previously he wanted to further differentiate private label, and has drafted in Belinda Youngs from Sobeys in Canada to look after all of the grocer’s private brand activities, reporting to Hodgson.
And Hodgson, who moved from Waitrose last year, has also persuaded Waitrose’s head chef Neil Nugent to join the team, working with him and Youngs on own-brand. Philips reiterated that drive to store managers last week, sources say. He called the project O2O and it will entail a move from “own-label to own-brand” by January next year.
Shore Capital analyst Clive Black believes that, at present, it is hard to trade up at Morrisons. He says: “Morrisons performed well in 2007/08, when shoppers were trading down, but when more normal behaviour returned it was found wanting.
He says Morrisons’ top-tier brand The Best has “tiny participation”, whereas Sainsbury’s Taste the Difference and Tesco Finest are “prevalent” in stores.
Hodgson points out that Youngs has only been with the business three weeks, and work has just started on private label, but adds: “We’re looking at everything from bringing in more unique lines, to service and how to overhaul our existing lines.”
He explains that, as well as putting in more fresh lines, part of Kirkstall’s success has been in service. “We’re doing lots more training so we can offer advice on cheese or wine or whatever the customer is buying,” he says.
Signs of the times
The new signage in the Kirkstall shop is very different from that in other stores and is part of Philips’ modernisation programme. Gone are the dated wicker basket bakery signs, for example, which have been replaced with cleaner, modern typefaces, coupled with imagery and light-hearted messaging such as ‘Say Cheese!’ at the cheesemongers or ‘Quick I’m hungry!’ at the ‘meals in minutes’ counter stocking ready meals.
Black says Bolland did an “incredible job” of rebranding Morrisons, but that “the stores have quickly become very dated”. He says the proof of the Kirkstall trials’ success will lie in how much of the innovation can be rolled out to the rest of the stores.
Hodgson says he wanted to bring some “fun and theatre” to the store environment. He says: “When I joined the business I wanted to inject some fun. We take our business seriously, but there is no harm in bringing some fun and character into the stores.”
He explains that each new element to Kirkstall has been installed in a modular way so that they can be broken down and rolled out separately. He says: “While everything has seen a sales uplift, it will depend on each of the stores in terms of what we roll out. Some things have proved rather expensive, so it won’t make commercial sense to roll them out, and others we can see easily working elsewhere.”
Hodgson also says that, with the store environment being “totally different to a typical Morrisons store”, the team is also assessing how the brand values are portrayed.
He says the fresh section has little promotional signage so Morrisons is currently evaluating whether its value messaging is strong enough.
The non-food department has also been revamped at Kirkstall, but remains way behind its competitors, because there is comparatively so much less product.
Black thinks that catching up with competitors would require an acquisition by Morrisons. He points to general retailers such as Home Retail Group and Matalan as potential takeover targets - there has been speculation in the past that both could be in the sights of big grocers. “Tesco’s general merchandise offer has been a 15-year project, so Morrisons is way behind,” he says.
However, Hodgson says: “The Kiddicare acquisition is a key marker for us and will see us start to really invest in non-food.”
He adds that, while most of Morrisons’ stores are constrained by space, the grocer will have to be “smarter” in terms of what non-food it carries in-store. “We don’t expect to have a bigger range than our competitors, but we expect to have a better range where nothing is gathering dust,” he says.
He also points out that liberating some space by reducing SKUs and back-office space - a trial is to start at Shrewsbury in the next fortnight- would help enable the installation of more non-food lines.
Philips and his team may have been keeping their heads down in Bradford, but Kirkstall shows there is a lot of innovation happening. Finding the balance between
Philips’ 10 ACTION POINTS
The 10 clear objectives that boss Dalton Philips told Morrisons managers would make the grocer “different and better than ever” in a document distributed to them and seen by Retail Week
‘Land the labs’
- Take the best results from the labs to create a store of the future
- Move from own-label to own-brand by January 2012
- Open 40 new stores and 14 extensions this year
Great place to work
- Be recognised in The Sunday Times’ 100 Best Companies to Work for list
- Improve customer service
- Develop IT systems for the future
- New distribution centre Bridgewater to open by the end of the year
- Keep costs down
Growth in manufacturing
- Expand food production facilities
Internet and convenience store
- Trial online shopping and develop convenience