Morrisons trolley and bagSupermarket Morrisons has scaled back plans for new store space as it gears up for the long-awaited launch of an internet shopping business.

The UK's fourth biggest grocery chain is battling to revitalise its business after underlying sales fell 0.9% in the six months to July 29, triggering a £9 million drop in profits to £440 million.

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With chief executive Dalton Philips forecasting no let-up in challenging trading conditions, Morrisons will look to save £100 million a year by reducing its target for new store space by a third over the next two years.

It will focus expansion on new stores in the south of England - where it is currently under represented - including its first 'M local' convenience stores in London.

The company is also taking its first steps into online grocery, starting with a new Morrisons Cellar wine range later in this financial year.

Morrisons is a late entrant to the online shopping market and has just sent a team to New York in order to learn from US food delivery business Fresh Direct, in which it acquired a 10% stake last year.

Its bid to win back market share has also seen the launch of a new system of personalised vouchers for shoppers as it looks to compete with Tesco's discount-fuelled fightback. The retailer is also rolling out more stores with an increased focus on its fresh food offer.

Shares rose 5% as underlying profits improved 1% to £445 million, helped by cost savings and efficiency measures and defying City expectations of a fall.

Chairman Sir Ian Gibson said: "With ongoing commodity inflation continuing to weigh on already fragile consumer confidence and market conditions becoming ever more challenging, we have had to work even harder for our customers during the first half."