UK
14/03/2013 05:32 GMT

Morrisons Hopes Ocado Partnership Will Reinvigorate The Supermarket After 'A Difficult Year'

Morrisons, Britain's fourth biggest supermarket, is in partnership talks with online supermarket Ocado in a deal which would allow customers to shop online with Morrisons for the first time.

The tie-up has been speculated about for months, as Morrisons is the only major supermarket without an online operation.

The news arrives on the back of disappointing results for Morrisons - it's results released on Thursday showed pre-tax profits dropped 7% to £879 million in 2012. And while turnover up 3% to £18.1 billion, like-for-like sales fell by 2.1%.

Chief executive Dalton Philips said in a statement on Thursday: "The sustained pressure on consumer spending was reflected in our like-for-like sales performance, which was not as good as it should have been. We have implemented a range of measures to address this and are making good progress in improving our promotional effectiveness and in communicating our points of difference."

Hinting at the recent horse meat scandal, 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. Food quality, provenance and the issue of trust are at the forefront of consumers' minds and these are all areas where Morrisons has something genuinely different to offer."

And while he acknowledged Morrisons would be late to the game of online shopping, he claimed the lessons learned from Kiddicare and Fresh Direct would help it offer a better service to customers.

"We have long been a leader in fresh food and our craft skills and vertical integration really set us apart from the competition. Ensuring that these points of difference translate into our online food offer will be a priority," Philips added.

Morrisons will also expand its store presence, as well as the number of convenience stores - 60 of which have been rolled out in the past few weeks.

Ocado meanwhile is going through an interesting period - having struggled after its listing on the stockmarket in 2010, it's starting to turn a corner.

At the turn of the year, it hired former M&S boss Sir Stuart Rose as chairman, and has improved its profitability - albeit while still recording a £0.6m loss in February. It also still has a sizeable amount of debt, rising from £19.2m in 2011 to £55.2m last year.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the potential tie-up with Ocado could help Morrisons to make up some lost ground, but it would still remain under pressure from discount rivals such as Aldi.

"The 48% increase in net debt – while perhaps understandable for future progress – has come at a difficult time. With the ongoing loss of market share and pressure on margins also in the mix, investors are likely to continue to give the company a wide berth," he added.

Figures from the Institute of Grocery Distribution showed the online food and grocery market is set to be worth £11.1bn by 2017, almost double its value of £5.6bn, reached in April 2012.