Morrisons admitted today that its performance fell short of expectations after reporting a 7% drop in full-year profits to £879 million.
The supermarket, which generated sales of £18.1 billion in the year, said it had not done enough to communicate its promotions and suffered because it still lacked a meaningful presence in the two fastest growing sectors of the market.
It will attempt to rectify this shortfall by accelerating the roll-out of its M Local smaller store format to 100 sites by the end of the year and has confirmed it will launch its online food offer by January next year.
As part of the internet push, it is in discussions with online grocer Ocado about an agreement to share its operating knowledge.
The UK's fourth-biggest grocer, which employs 129,000 staff at 498 stores, said like-for-like sales dropped 2.1% in the year, while the average of 11.4 million customers in its stores each week was down on the prior year.
Chief executive Dalton Philips said: “2012/13 has been a challenging year for the company during which we did not perform as well as we would have wished.
“We are implementing a comprehensive range of plans to address these trading issues.”
He said food quality, provenance and trust were at the forefront of consumers' minds following the horse meat scandal.
Half of Morrisons' fresh products are processed through its own factories and, as part of a £200 million investment plan announced in 2010, it has recently established a seafood processing facility in Grimsby and expanded its Colne abattoir to enable further pork processing.
Mr Philips added: "Recent events have underlined why it's so important that we tell our customers how and why we're different and what our vertical integration really means for them."
Morrisons said its first 12 M Local convenience stores were performing well and that the acquisition of 60 sites in recent weeks, including 49 former Blockbuster stores, increased its store openings target by 40% this year.
As part of its planning for an online grocery operation, Morrisons has sent a team to New York in order to learn from US food delivery business Fresh Direct, in which it acquired a 10% stake last year.
It recently launched its online Morrisons Cellar wine range and also bought the Kiddicare online clothing business in 2011.
The company said: "We have completed that evaluation and are now confident that we have identified a model that will enable us to provide food online in a distinctive, customer-focused way that reinforces Morrisons leadership in fresh food by putting fresh food at the heart of its offer."
Plans for the use of Ocado's knowledge fuelled speculation that the two companies will forge closer ties, although Ocado stressed that there were no talks about Morrisons acquiring all or part of the company.
Ocado shares were more than 20% higher today, while Morrisons rose by 3%.
Dan Coen, a director at advisory and restructuring firm Zolfo Cooper, said that while it has been slower than others to keep pace with changing consumer habits, 2013 will prove an important year for Morrisons to gain a competitive advantage and return to previous profit levels.
He added: "Morrisons' results may be disappointing, but a comeback could be on the horizon."