New Chief Executive Dalton Philips said on Thursday he expected grocery market growth to remain subdued over the next 18 months, as rising fuel prices, taxes and unemployment limit retailers’ ability to pass on higher commodity prices.

“Consumers continue to be under pressure... We expect a further period of low industry growth,” he told reporters, after the group met forecasts with a 14 percent rise in first-half underlying profit to 410 million pounds ($634 million).

Morrison’s has outperformed bigger rivals Tesco, Asda J Sainsbury in terms of sales growth for the past few years as it recovers from the botched acquisition of Safeway in 2004 and customers respond to its mix of low prices, fresh food counters and innovative promotions.

But some analysts are concerned the turnaround has played out and Morrison’s lacks the diversity of its rivals, which have expanded into often faster-growing areas like non-food and online retailing, smaller stores and financial services.

Philips, who joined in March from Canadian grocer Loblaw, said Morrison’s would open three pilot convenience stores in the first half of next year, and trial selling groceries online in a limited, unspecified geographic region.

RBS analyst Justin Scarborough said the strategic plans made sense and could eventually help Morrison’s to close its share price discount against many of its rivals, though he thought the stock would initially suffer from only “in line” results.

At 0830 GMT Morrison’s shares were down 1.4 percent at 288.5 pence, underperforming a 0.3 percent decline on the STOXX 600 European retail index. The stock has underperformed that index by 9 percent over the past year.

Philips said Morrison’s ability to produce much of its own food could help its entry into convenience stores. “With fresh food playing an increasingly important part of the convenience offer, there may be a real fit with our business,” he said, noting that Morrison’s produces a much higher proportion of its own food than its rivals.

Verdict Research analyst Neil Saunders said Morrison’s needed to move quickly, given Tesco, Asda and Sainsbury’s are already expanding rapidly into the smaller stores market.

Morrison’s was also right to move cautiously online, he adding, saying it was “incredibly difficult” to make a profit selling groceries over the Internet.

Philips said Morrison’s was Britain’s second-biggest manufacturer of fresh foods and would invest further in food production, which he viewed as a key differentiator from rivals.

It would also aim to free up between 5 percent and 15 percent of selling space in its stores by trimming its existing range of products to create room for more health and ethnic ranges and/or more non-food products, he said.

Sales at Morrison’s shops open over a year, excluding petrol and VAT sales tax, rose 0.9 percent in the six months ended Aug. 1, a modest pick-up from a 0.8 percent increase in the first quarter, but toward the bottom of analysts’ expectations.

Philips said he believed that still put Morrison’s a “nose ahead” of rivals, which have yet to report second-quarter sales.

Britain’s retailers are struggling in an uncertain economic recovery. Home Retail, the country’s biggest household goods group, said on Thursday full-year profit would be in the bottom half of the range of analyst expectations, while music and books chain HMV reported a plunge in quarterly underlying sales.

Morrison’s, which runs 425 stores, estimated higher petrol prices cut the disposable income of its 11 million customers by about 240 million pounds in the first half.

But the group said it was confident of meeting its full-year profit expectations and raised its interim dividend by 14 percent to 1.23 pence a share.