The country's fourth-biggest grocer Wm Morrison Supermarkets said it is well-placed to resist any attempt by wounded market leader Tesco to make gains in the fresh food battleground after leading the way with its own fresh format stores.

Last year Morrisons launched a new fresh food concept in 12 stores, introducing 350 more fruit and vegetable products, reducing space given over to processed foods and knocking down walls so customers can see its butchers, bakers and fishmongers in action.

The revamped stores posted a 14 percent rise in produce sales, with delicatessen sales up over 40 percent.

Some 48 stores will have the new format by July, at a cost of 1.7 million pounds ($2.7 million) per store.

This will be a differentiator, this is game-changing stuff, Chief Executive Dalton Philips told reporters.

We'll have 15 percent of our sales going through these new fresh formats by the end of the first half. It's almost impossible to replicate.

On Monday Tesco began its fight back after a shock post-Christmas profit warning, detailing plans to create 20,000 jobs, open new stores and refresh hundreds of existing stores with a focus on improving its offers of fresh produce, fresh meat, bakery and counter services.

Morrisons' Philips said: We're taking the fresh market experience to a whole new level and just moving it right on. We can do that because we've got these craft skills in our business, it's part of our culture.

You just can't create a butcher or a baker, it takes years and years.


The CEO was speaking after Morrisons posted a better-than-expected 8 percent rise in full-year profit, sending its shares 2 percent higher.

Morrisons, which trails Tesco, Wal-Mart's Asda and J Sainsbury in UK market share, posted a profit before tax and one-off items of 935 million pounds in the year to January 29, helped by a focus on fresh foods and low prices.

That compared to analysts' average forecast of 922 million pounds and 869 million pounds made in the previous year.

Turnover rose 7 percent to 17.7 billion pounds, with sales at stores open at least a year up 1.8 percent.

Retailers are mostly struggling as shoppers are hit by rising prices, muted wages growth and government austerity measures, as well as worry about a stagnant housing market, job security and the impact of the euro zone debt crisis.

Morrisons, which raised its dividend by 11 percent to 10.7 pence a share and its capex guidance for 2012 to 1.2 billion pounds, said it anticipated 2012 would be challenging but said it expected to deliver profitable growth.

Given the context of very tough UK food retail trading conditions, we consider this encouraging, said analysts at Credit Suisse.

As well as modernising its core chain, Morrisons, which runs nearly 500 superstores and, unlike rivals, produces much of the food it sells, has been diversifying into non-food, e-commerce and convenience stores.

After trailing three M local convenience stores in 2011 the firm will open 15-20 this year and 50 next year.

Shares in Morrisons, which have lost 11 percent of their value over the last three months, were up 2.49 percent at 291.9 pence at 11.10 a.m. valuing the business at 7.3 billion pounds. (Reporting by James Davey; editing by Neil Maidment and Hans-Juergen Peters)