UPDATE 1-Morrisons still in talks with Ocado as sales fall

Thu May 9, 2013 2:43am EDT

LONDON May 9 (Reuters) - Britain's No. 4 grocer, Wm Morrison Supermarkets, said talks with online grocer Ocado on a possible tie-up were continuing, as it posted another fall in quarterly sales.

Morrisons, which trails market leader Tesco, Wal-Mart's Asda and J Sainsbury in UK market share, said on Thursday sales at stores open over a year fell 1.8 percent, excluding fuel, in the 13 weeks to May 5, its fiscal first quarter.

That compared with analysts' average forecast of down 2 percent, according to a Morrisons poll, but was an improvement on a fourth quarter decline of 4.1 percent.

"This performance reflects a steady improvement from the previous quarter and is in line with our expectations," the firm said, adding that throughout the period the industry had remained very competitive with promotional coupons and vouchers a significant factor.

Morrisons said its expectations for the full year were unchanged.

The firm is being hurt by its limited exposure to convenience stores and lack of an online food offer.

These are the two fastest growing areas for Britain's supermarkets as shopping habits change, with consumers increasingly using the internet to shop and high fuel prices discouraging trips to town centres and out-of-town malls.

In March Morrisons said it would launch an online food business by January 2014, possibly with the help of Ocado.

Morrisons has also accelerated investment in convenience stores, targeting 100 by the end of the year.

The firm, which unlike rivals produces a lot of the products it sells, said it was doing a better job of telling customers how its offer was better by, for example, highlighting its more than 5,000 trained butchers, bakers and fishmongers, and doing more to make its promotions stand out.

Shares in the firm closed Wednesday at 292.7 pence, valuing the business at 6.8 billion pounds ($10.58 billion).

Grocers, despite their focus on essential goods, have not been immune to the economic downturn.

Last month Tesco posted a 51.5 percent slump in year profit. However, on Wednesday Sainsbury's reported a 6.2 percent rise in annual profit.

Asda is due to update on its first quarter on May 16.