Struggling supermarket Morrisons sees sales fall 2.4%

Grocer said subdued consumer confidence led to heavy discounting

TV presenters Ant and Dec in the Morrisons 2014 Christmas TV advertising campaign

Struggling supermarket Morrisons blamed worsening trading on its weakness in convenience and online retailing as underlying sales slumped by 2.4 per cent in its latest quarter.

Britain's fourth-biggest grocer said subdued consumer confidence also hit sales, with supermarkets being forced into heavy discounting to win over cash-strapped shoppers.

The deterioration in like-for-like sales in the 13 weeks to the start of November was worse than expectations for a 1.7 per cent decline and will heap further pressure on chief executive Dalton Philips.

It comes after a 1.6 per cent decline in the six months to the start of August, also echoing industry figures showing the chain's market share has shrunk to around 11.2 per cent from 11.4 per cent a year ago.

Morrisons, which is pinning hopes on an expansion into online retailing and convenience stores, said its low exposure to these areas "continues to impact sales performance".

It said: "Consumer confidence remains subdued and we continue to see heavy promotional activity across the industry."

It added the market will remain "challenging" for the rest of the year, but insisted the performance was in line with its expectations.

Morrisons said it now has 69 M Local convenience stores after opening 36 during the quarter - a rate of three a week - with around half in London and the South East.

The group said it is on track to have 100 convenience stores by the year end and open another 100 in its next financial year.

It is launching its online food offer in partnership with internet grocer Ocado in January.

Mr Philips has admitted the supermarket is two decades behind its competitors, which have had an internet presence since the 1990s.

Including the contribution from new stores, total sales at the Bradford-based chain were up 1 per cent in the third quarter.

Mr Philips said: "We continue to grow our sales in this tough market whilst making great progress on our strategy to be a multi-channel retailer.

"I said at the outset that our online offer would be unmistakably Morrisons and I'm very confident that the service we unveil in January will live up to that promise."

He said the grocer's online service will be able to serve 50 per cent of UK homes by the end of next year.

It launches its Christmas advertising campaign tomorrow, with the slogan "Go on it's Christmas".

Morrisons said the festive campaign aims to "help customers treat themselves and their families with award-winning food at affordable prices". It will include "industry-leading deals".

Morrisons has also relaunched 11,000 own brand products, and will now focus on improving its supply chain.

Mr Philips said he was confident the chain will record like-for-like sales growth in its November to early-February quarter, as it stacks up against a tough period a year earlier.

But he said the retailer's performance was unlikely to truly turn the corner until 2015, when it will have a sizeable convenience network, overhauled stores and an online presence.

He said: "(Our) turning point will be 2015. We are strengthening our business. We are making key steps forward into these new growth channels."

Mr Philips suggested its small convenience store offering and lack of online grocery delivery was knocking as much as 1.5% to 2% from sales.

And he said the growth of discount chains such as Aldi and Lidl was "impacting everybody".

He added that the third-quarter slump reflected a "big drop-off" in sales after a summer spending spree.

"People spent over those hot weeks of the summer and then they reined it right back in. It's been a tough post-summer market for everyone," he said.

But he insisted Morrisons saw an "improving trend" in the final weeks of October.

The group's convenience business is also starting to expand the chain's reach, with 400,000 M Local transactions last week, according to the firm.

Its online service will start serving homes in Warwickshire in January, before moving into Yorkshire.

"Today we deliver to zero households in the UK," said Mr Philips. "This time next year we will be delivering to 13 million households in the UK."

Shares in the chain fell 1% as the sales slide disappointed.

Analysts at Cantor Fitzegerald said: "Despite the extra advertising costs and store refurbishments, Morrisons is still losing the most market share and remains the weakest of the major supermarkets."

PA