Morrisons starts fresh campaign in London

Morrisons yesterday shrugged off accusations that it is deserting its core customer base by moving upmarket, and unveiled a fresh attack on the lucrative London market.

The supermarket chain is poised to roll out convenience stores branded M across the capital, after readying a distribution centre in west London. It is also expanding its online offering, with the Morrisons Cellar wine service, a clear attempt to take on Majestic Wine.

Dalton Philips, the chief executive, says the Morrisons convenience stores will be cheaper than rivals, selling goods for the same price as in its out-of-town supermarkets. "The other convenience stores have a price tilt and we won't," he pledged.

In the half-year to July, sales rose 2.3 per cent to £8.9bn. Profit slipped £9m to £440m, a result that was better than the City had been expecting. In response Morrisons' shares rallied 12p to 292.7p. It has been using spare cash to buy back stock to the tune of £628m this year so far.

Morrisons has been criticised in some quarters for becoming too high-brow, selling fancy vegetables and unusual meats when it should be focusing on keeping costs down. Mr Philips said: "It doesn't make much sense to me. We have been taking down the walls in the stores so people can see our bakers and butchers at work. Our value position has never been better. We are promoting fresh food."

The Fresh Format is now in 45 stores and will grow to 100 this year.

Morrisons has just 6 per cent market share in London. It says that 6 million households do not have easy access to one of its stores, which gives it plenty of room to expand.

On the economy, Mr Philips was downbeat. "I don't see it turning any time soon," he said. "Our consumers are worse off than they were a year ago."

The company statement noted: "In this environment shoppers are changing their behaviour. Those that have discretionary income are electing to pay down debt rather than spend. We are seeing more customers than ever carefully searching for value. They are putting fewer items in their baskets, buying only what is needed and seeking to avoid waste."