Morrisons takes the axe to investment in supermarkets

The grocer is to cut £350m from its capital expenditure next year in a bid to become more profitable and will focus on building its convenience and online arms.

Morrisons’ capex will be £1.2bn this year but will be cut back to £850m in 2014/15 and will drop to £650m the year after.

The grocer will open 350,000 sq ft of new supermarket space in its next financial year, down from 500,000 sq ft this year.

Chief executive Dalton Philips will counterbalance the shift by ramping up convenience store openings as customers increasingly shop for smaller baskets more frequently.

The retailer will double its M Local convenience estate to 200 shops next financial year. At present it has 46 c-stores and will have 100 by year-end next March.

The grocer has identified 6 million households it does not serve that it will try to reach with new supermarkets.

Morrisons’ decision comes after leading retailers including Tesco called an end to a two-decade long space race when out-of-town stores lured throngs of shoppers.

Although Morrisons does not have non-food space comparable to its big-box rivals, the retailer has recognised it needs to grab share of the convenience and online markets, which are both growing at 20% year on year.

Morrisons inked a £216m deal with Ocado in May to launch food online by January 2014.

Morrisons today reported a 1.6% fall in like-for-likes in the first half as underlying profits fell 10%.

IGD data released today showed online grocery is poised to grow in value from £6.5bn to £14.6bn by 2018.

Convenience sales will rocket to £46.2bn from £35.6bn, while large supermarkets will grow from £74.1bn to £80.1bn.

IGD chief executive Joanne Denney-Finch said: “Both online and convenience retailing are reaping the rewards of our changing lifestyles.”