Loss-making Morrisons relies on upgraded IT infrastructure to catch up with rivals

Morrisons has revealed a number of IT-enabled initiatives, such as a new loyalty card programme, to help it catch up with its competitors after it reported a pre-tax loss of £176 million for the year to 2 February 2014.

The UK’s fourth largest supermarket, which recorded a £879 million profit the previous year, only entered the online groceries market with Morrisons.com in January, years after competitors like Tesco and Sainsbury’s.

It said that it had been held back by its “antiquated” IT infrastructure. Morrisons CEO Dalton Philips pledged to drag the company’s IT system into the “21st century” with a £300 million investment in the overhaul of its IT infrastructure last year.

“The discount sector has performed strongly, driving much of the market growth. The rest of the market has been working hard to counter this threat, with particular emphasis on loyalty programmes and personalised couponing, areas in which Morrisons has not been able to participate fully to date, due to outdated IT infrastructure and systems,” said Morrisons’ chairman Sir Ian Gibson in the company’s preliminary full-year results.

“Whilst these factors, combined with the fact that we do not yet have a meaningful presence in online and convenience - the two fastest growing channels in the grocery market - have clearly held us back, and the overall performance of our core business has been disappointing.”

Sainsbury’s recently revealed how its Nectar loyalty programme gave it valuable insight on customers and an overview of transactions across its multiple channels, including online.

Morrisons plans to launch its Morrisons card “that means we know what our customers really want” later this year, after testing a number of card “propositions”. The card will enable it to collect customer data, understand its customers better and to improve the targeting of offers to customers. It currently has a petrol Miles loyalty card, but 5.5 million of these are unregistered.

IT infrastructure overhaul

The supermarket said that its IT systems refresh is “progressing well”, with the recent conclusion of a “major” phase of its six-year development project to replace its legacy systems with an “industry-leading software capability”. While it did not provide a specific date for the end of the project, it said that its IT infrastructure was “close to completion”.

It said that its IT investment has enabled the company to become more efficient, improving business processes and improving productivity in distribution.
“The prime focus for the past year has been on improving our supply chain and forecasting through the introduction of new tools. The solution replaces legacy systems for the management of the warehouse, updates core systems for the management of product information and implements new systems to enable electronic communication with our suppliers,” Morrisons said.

“This technology has provided us with the ability to track stock at every stage during its journey through the warehouse, improving accuracy and enabling us to improve our service levels and availability in store.”

In addition, it has completed the rollout of new systems for its meat manufacturing operations, which has improved traceability, compliance and efficiency.
“This comprehensive and business transforming project has enabled us to exceed our three-year savings target of £100 million,” it said.

“More importantly, it has provided us with an outstanding IT infrastructure that will allow us to drive even more efficiencies into the business in the years ahead and we will soon be in a position to decommission our legacy IT systems.”

The new technology has also improved processes in stores.

For instance, Morrisons has automated its cash office processes, removing the need for manual counting at the checkouts, and streamlined its back office processes. It also implemented new technology in most of its tills to reduce the overall checkout transaction time.

“A further significant change to a long-established process was the introduction of an electronic order pad that allows colleagues to place orders via a tablet, replacing paper-based systems in all our stores.”

The supermarket plans to build on the introduction of electronic order pads, further simplifying a process to display products in shelf order and increase the number of lines that are automatically re-ordered. It also plans to introduce further technology improvements at its checkouts to “enhance” the shopping experience.

Online groceries focus

Since the launch on 10 January up until 10 March, Morrisons said it now delivers groceries to 20 percent of UK households, mainly to customers in Warwickshire and Yorkshire. It forecasts annual sales of £200 million by the end of the year, as it expands its services more widely in the UK.

Having entered the market for online groceries late, Morrisons is now keen to focus on Morrisons.com. Part of this strategy involves selling its online baby goods arm Kiddicare this year, as well as its stake in the New York-based online food store Fresh Direct.

Morrisons acquired Kiddicare in 2011 as its first foray into online retail. It had planned to use Kiddicare’s technology and management expertise as the basis for its own online food offer, however it decided to launch its online food operation through Ocado rather than using the Kiddicare infrastructure.

As a result, Morrisons wrote off online costs of £27 million in the first half of 2013, which was the online costs of setting up an independent online operation. Moreover, Kiddicare’s performance has been “disappointing”.

“It is imperative that Morrisons focuses very clearly on its core grocery channel. Kiddicare no longer fits our strategy and its poor financial performance will take time to address. We will seek to sell the business in 2014,” Morrisons said.

Morrisons said that its partnership with Ocado had allowed it to offer online groceries “far earlier” than would have been possible had it chosen to develop its own solution in-house.

Meanwhile, it said that it was planning to sell off its stake in Fresh Direct, which it bought in 2011, having now embedded what it had learnt from the business in its own offering.

“We have learnt a huge amount from this association and have incorporated many of their concepts into our new food online proposition. With an experienced management team in place and Morrisons.com now successfully launched, we no longer need to retain this investment and will therefore dispose of it at the appropriate time,” the supermarket said.

Copyright © 2014 IDG Communications, Inc.

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