Morrisons considers launching online store after miserable Christmas

Sales drop 2.5% over the festive period as shoppers favour home delivery from supermarket's rivals

Supermarket chain Morrisons said it is considering the launch of an online grocery store, after it was left behind at Christmas as shoppers abandoned the weekly trek to its stores in favour of home delivery from its rivals.

The Bradford-based grocer said like-for-like sales dropped 2.5% in the six weeks to 30 December. It is likely to be the worst performance of the large supermarket groups and analysts said Morrisons only managed to avoid a profits warning by heavily trailing its weak sales.

Its results come against a backdrop of stagnant growth in retail sales across the UK. The British Retail Consortium and KPMG said like-for-like sales inched up by just 0.3% in December, compared with the same month the previous year. Store sales actually fell once healthier online sales were stripped out - the first Christmas since 2008 that this has happened.

In December 2011 sales were ahead 2.2%, even given the challenges of snowy weather.

Online sales shot up by 17.8% - the fastest rate for a year - as shoppers with smartphones and tablets took advantage of more sophisticated websites and increasingly popular 'click and collect' services.

Helen Dickinson, director general of the BRC, said: "Against the relentlessly tough economic backdrop and low expectations, these results are not a cause for celebration, but not a disaster either. This rather underwhelming result brings a year of minimal sales growth to a close."

Morrisons has been hit by a combination of hard-up shoppers being tempted away by discounters such as Aldi and Lidl, while its more affluent customers are shopping online. The grocer is also behind its rivals opening convenience stores, which are proving increasingly popular.

Its chief executive, Dalton Philips, said the weak trading over Christmas underlined the need to improve its online offering, convenience stores and promotional activity.

He said the company was seriously considering the launch of an online grocery store and that he would provide further details at the full-year results in March. "We are looking very closely at it; we like what we have seen so far."

Philips insisted Morrisons had not missed the boat. "This is a market where for 12 years people haven't made any money. We're not too late to the party. It's still only 5% of the market, but it is growing very quickly. In some cases, there are last-mover advantages."

He noted that online shopping grew by 20% last year, while sales at small, local stores was 6% higher. Morrisons is expanding into convenience stores and has opened 12 "M Local" shops.

The company is also pinning hopes on an advertising tie-up with TV duo Ant & Dec to revive its fortunes, after admitting its promotional activity failed to win customers.

Shoppers have seen their budgets squeezed this year as pay has failed to keep up with inflation, and Philips said they continued to tighten their belts over the festive period. "People were mindful of what was going in the basket. You've got the emergence of this very savvy shopper, always looking around for the lowest-priced items. If that means discount stores, they will go there."

Even within this challenging market, however, Morrisons said trading was "disappointing" and Philips admitted sales were lower than anticipated. The company did not, however, issue a profits warning – which some analysts had predicted – saying it expects full-year performance to stay in line with forecasts. Analysts are targeting underlying profits of £913m for the year to February.

Philip Dorgan of Panmure Gordon said: "This trading statement is grim, but there is no direct profit warning, in part because consensus (the profits expected by City analysts) continues to fall." He expects analysts to slash profit forecasts for 2014 and 2015 – by 15% and 20% respectively – as sales decline and Morrisons is forced to invest in online and convenience stores. "We would have preferred this issue to have been addressed today, which would then allow management to focus on fixing its business, rather than defending an unsustainable level of profit."

Philips said market conditions were likely to remain difficult throughout 2013. That echoed the view of the BRC and KPMG, which forecast another challenging year for the sector.


Josephine Moulds and Rebecca Smithers

The GuardianTramp

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