Morrisons says playing catch-up will take time

Thu Jun 13, 2013 12:04pm EDT

* Chairman defends Ocado deal

* CEO says outlook remains tough

* Says exploring customer loyalty card

By James Davey

BRADFORD, England June 13 (Reuters) - Britain's No. 4 grocer Wm Morrison Supermarkets told shareholders they will have to be patient as the firm tries to catch-up with rivals which have much bigger online and convenience store offers.

Morrisons, which trails Tesco, Wal-Mart's Asda and J Sainsbury in annual sales, has seen profits and market share dented by its late entry into online grocery and convenience stores, markets which are growing in Britain at about 16 percent and 20 percent a year respectively.

"We've got great colleagues, we've got great stores and we've got a great balance sheet, so we have a platform to grow on," Chief Executive Dalton Philips told shareholders on Thursday at the firm's annual meeting in Bradford, northern England.

"But it's going to be tough and it's going to remain tough until all these pieces start fitting together," he said.

Morrisons agreed last month to invest over 200 million pounds ($314 million) in a 25-year deal with online grocer Ocado that will see the firm start home deliveries by the end of the year.

However, some analysts have said Morrisons is overpaying and have questioned the length of the contract in a fast changing market. And while Ocado's shares have recently hit record highs, Morrisons have fallen about 9 percent over the last month.

Chairman Ian Gibson defended the deal. "Morrisons will move from absolutely nowhere in online to a full offer in a little over two years," he said, adding that the venture is expected to be profitable by 2017.

"Most of the people you look at in the UK delivering online food are still not profitable. They have been doing it for more than 10 years."

Morrisons is also addressing its limited exposure to convenience store markets as well as competition from discounters Aldi and Lidl, targeting 100 convenience stores by the end of the year.

In response to a shareholder question Gibson said that following recent investment in its IT capability Morrisons was reconsidering whether to offer a customer loyalty/discount card, something both Tesco, with its Clubcard, and Sainsbury, with its Nectar card, have been doing for years.

"It's a new opportunity for us, we are looking at it, we want to make a carefully thought out decision," he said.

Last month Morrisons posted a 1.8 percent fall in sales at stores open over a year, excluding fuel, for its first quarter. It expects like-for-like sales to remain negative in the 2013-14 year.

Echoing comments from Sainsbury on Wednesday, Philips was downbeat on the macro outlook.

"One third of our customers get to the end of the month and they have nothing left over," he said. "We hear of mums who are skipping meals so that they can feed the family."

Unlike previous years, Ken Morrison, the son of the founder and a former CEO who has previously questioned the board's strategy, did not attend, but the meeting was not without some shareholder dissent.

"Why the heck are we starting to sell clothing," said one.

Others were critical of the deteriorating quality of Braeburn apples, "scraggy" carrots, and a decision to outsource some accounts work to India.

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