Morrisons in new online and c-store experiment

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Morrisons this week unveiled its biggest change in strategy since taking over Safeway in 2004 - if not since 1958, when it moved from market stall to town-centre store.

The retailer is set to enter the hotly contested convenience market next year and will follow this up with an online grocery trial in the second half of 2011.

Speaking as Morrisons revealed its interim results, new CEO Dalton Philips confirmed it would open three trial convenience stores in the first half of next year. He would not reveal the store locations, but said they would be smaller than 3,000 sq ft and would look to leverage Morrisons' strength in fresh food.

The move means that despite its recent drive into smaller supermarkets, Asda will be the only one of the big four that doesn't own pure c-stores.

"The convenience market is growing at twice the rate of the grocery market," said Philips. "But it has not been well served from a fresh point of view."

While the convenience move was Philips' biggest surprise, the retailer's foray into online was much anticipated. Last June, The Grocer revealed Morrisons had been looking at other retailers' online operations to work out the best way to move forward.

It will begin a limited geographical online grocery trial in the second half of next year. Philips said it was still assessing which model to adopt but suggested it may use two of the four existing models: store picking, ghost stores, click-and-collect and large fulfilment centres.

He was quick to emphasise that Morrisons would not press ahead with online deliveries if it did not prove profitable."We know we can make it work for our customers but it has to work for the P&L too," he said. "If we are subsidising online with our core business, customers will end up paying more and that's a fool's game. We're not going to do that."

In his first major announcement since becoming CEO, Philips also identified Morrisons' own-label offer as an area that could be improved. He said he wanted to "transform its own-label into a distinctive Morrisons brand".

Morrisons was also looking at ways of creating more space in its stores through a combination of improved layouts and range editing. This space could be used for more non-food or wider aisles for shoppers, said Philips.

Morrisons is also planning to turn one store into a "Fresh Lab" this month, to test new ideas in fresh produce and "really challenge conventions".

The results revealed total sales for the six months to 1 August were up 9.1% to £8.1bn, with like-for-like sales up 0.9%. CFO Richard Pennycook said he believed this was still just ahead of the market.

Shane Brennan of the ACS warned that Morrisons could find cracking the c-store market tough. "Convenience can be very different from big grocery," he said. "The mults' attempts to move into this sector have not always been successful."

Convenience: Morrisons will open three stores of under 3,000 sq ft in the first half of next year. The stores will have a strong focus on fresh food.

Online grocery: An online grocery trial will be launched the second half of next year in a geographical area where the multiple already has a strong presence.

Range: Philips wants to rationalise Morrisons' range to create more space instore. He said he was shocked to find 16 varieties of balsamic vinegar in one store.

Own-label: He also wants to improve the retailer's own-label range to transform it into a distinctive Morrisons brand.

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