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Morrisons defies high-street slump

An extra 400,000 cash-strapped shoppers a week flock to supermarket chain Morrisons, lifting profits 8% to £442m

Morrisons, Britain’s fourth-largest grocer behind Tesco, Asda and Sainsbury’s, is bucking the high-street gloom as cash-conscious shoppers seek bargains at its 468 stores.

The Yorkshire-based supermarket headed by Dalton Philips said the business was attracting more than 400,000 extra customers a week, bringing the tally to 11.5 million.

Philips said a third of Morrisons customers were finding they had no money left at the end of the month, and so were changing the way they shopped. “They are cooking more at home and more from scratch, playing into Morrisons’s strength in fresh foods,” he said .

Morrison sells 38% of its goods via promotions, which have nearly doubled in five years, highlighting how shoppers are increasingly looking for discounts.

Philips said: “Consumer behaviour is changing. People are leaving their credit cards at home and paying with cash or debit cards as a way of exercising more self-control. Shoppers are buying goods by splitting the cost with friends, and they are checking prices more rigorously. It’s a new world.”

The high cost of oil resulted in Morrisons consumers paying an average of 18p per litre more at the pumps than in the previous six months, with an average unleaded price per litre of 132p. Customers paid £240m more for their fuel, a significant impact on their disposable income.

Philips said the company was running more of value-for-money offers and an improved product range, especially in fresh produce, fish and wine. In the six months to the end of July, like-for-like sales advanced 2.2%, with underlying profit up 8% to £442m during a period when many high street retailers have struggled. The dividend was raised 10%.

The City welcomed the Morrisons figures, pushing up the shares 4%, with Andrew Porteous of Evolution Securities saying the firm had delivered “decent numbers against a difficult backdrop”.

Philips does not envisage an improvement in consumer spending for a year or so. In the last three years, he said, “we have seen the biggest drop in personal spending power since 1980-3″. He added inflationary pressures had led to “the largest rise in food and grocery spending as a percentage of GDP since the end of the second world war”.

Morrisons is determined to launch an online offering of non-food items under the brand name next year, with a web delivery service for food pencilled in for 2013.

The company has hired Simon Thompson, Apple’s former internet store director, to help drive its long-awaited move online, where rivals are ahead. Morrison is rushing to catch up, however, buying FreshDirect, the US online grocer in March, and Kiddicare, the online baby goods retailer. “Thompson’s recruitment is a clear and bold statement of intent in terms of Morrisons’s online plans for the future,” said RBS analyst Justin Scarborough.

Research firm IGD estimates that the UK online grocery sector is worth £4.8bn, accounting for 3.2% of total grocery spending. This is expected to double to £9.8bn by 2015, with web grocery orders growing faster than the rest of the market.

Morrison has opened two convenience stores in the north of England, where trading is said to be going well, and the plan is to open another five or six over the next 18 months.Total store sales rose by over 4%, buoyed by Morrison’s recent acquisition of 16 Netto stores from Asda.

Philips declined to comment on speculation that Morrisons is preparing a bid for supermarket chain Iceland, which is up for sale after two of its Icelandic shareholders went out of business. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds