After decades of trading on northern common sense, Wm Morrison is off to Manhattan to learn how the Americans are turning a profit from delivering groceries.
The supermarket chain has spent £32 million on a 10 per cent stake in the New York online grocer FreshDirect — a sort of Ocado for the smarter districts of the Big Apple and counties out to New Jersey. Like Ocado it was founded by former investment bankers. Unlike Ocado, it makes a profit.
The British chain was keen to emphasise that the move was not a strategic leap into the cut-throat world of US retailing. Dalton Philips, the chief executive, said: “No one in Europe has cracked the online fresh food market. FreshDirect is the finest online fresh food retailer in the world. We intend to embed a team there, take back the learnings and apply them in the UK.”
FreshDirect makes freshly prepared meals to order for each customer at a dedicated kitchen, as well as delivering groceries. Morrisons thinks that the model will work particularly well in London and the South of England, where it is keen to increase its market share. It plans to launch an online food business in Britain in 2013.
The deal is the company’s second step into online retailing after it bought Kiddicare.com, a baby products retailer, this year. It follows the same logic of learning how to do business online from an established profitable player.
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Morrisons said that FreshDirect would have an “economic interest” in its British version.
The American adventure comes as Morrisons admitted that sales growth was falling in Britain. The supermarket also confirmed that it would embark on a £1 billion share buyback over the next two years.
The business committed itself to double-digit dividend growth over the next three years, starting with a 17 per cent rise in this year’s payout to 9.6p per share. Total like-for-like sales growth for the year was 0.9 per cent, compared with 6 per cent in the previous financial year when Britain was in recession. Like-for-like sales in its fourth quarter were up by 0.5 per cent, indicating that Morrisons had a poor January.
Mr Philips, who replaced Marc Bolland last March, said: “We expect the economic backdrop to remain challenging in 2011.” However, profits were still rising and Mr Philips said that he expected that trend to continue after a number of cost-saving programmes and improvements to store layouts.
In the 12 months to January 30 Morrisons reported pre-tax profits up 1.8 per cent at £874 million on turnover of £16.5 billion, 7 per higher than the previous year.
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Ian King, page 39
Winning recipe
Founded in 1999 by two former investment bankers, FreshDirect made its first delivery in 2002 and now handles about 45,000 orders per week. Sales were estimated to have hit $300 million last year, up about 20 per cent, according to IGD. The company sources from local farms, dairies and fisheries, and all produce is delivered to its operations centre in Long Island. From there it is picked for orders or prepared into meals by a team of chefs.
The business struggled to cope with higher than expected demand in the early days but began to turn a profit a couple of years ago.
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•The world’s biggest retailer is to open a string of smaller Wal-Mart Express outlets in an attempt to boost flagging growth in its home market. The new stores are expected to occupy about 10,000 to 14,000 sq ft — less than a tenth of the area occupied by the chain’s superstores.
Wal-Mart hopes that a shift to a smaller format will help to reverse a decline in US sales, which have fallen for seven straight quarters. The company predicted that comparable store sales could be down 2 per cent for the first quarter ending April 29. The Express stores will also be smaller than the 40,000 sq ft Neighborhood Market stores that were introduced in 1998.
Last month the electrical giant Best Buy said that it would slow the growth of big stores this year in favour of adding 150 smaller stores focusing on smartphones.