The Bradford-based group’s sales are rising strongest in London and the south-east, where it has just a 6% market share. However, Mr Philips said it is still expanding sales in Scotland, where it is number three behind Tesco and Asda, albeit at a lower level and in line with the rest of the country.
Mr Philips, who joined the group from Canada’s largest grocery chain Loblaw last year, said: “A third of our customers are saying they are getting to the end of the month and saying they literally have nothing left over.”
He added that the past three years had seen the biggest drop in consumer spending power since the early Thatcher period of 1980 to 1983 thanks to rising commodity prices and a weak pound pushing up costs at a time of weak wage growth.
“There is a growing professionalism in people’s approach to shopping,” he said, adding that he expected this to persist even when the economy recovers.
Morrisons has seen an 8% fall in credit card usage and a corresponding rise in cash and debit card payments as shoppers strive not to overspend.
Mr Philips said shoppers are pursuing “an almost insatiable search for bargains” with shopping tips shared on social networking sites.
He hinted that he would like to see the Government do more to boost the faltering economic recovery, saying: “The economy is in a very fragile place and consumer sentiment is poor. It is the worst in a generation.
“We recognise that the Government has to implement a number of austerity measures but we are looking for some hope at the end of this.”
Despite the challenging trading environment, which the chain expects to continue for “some time to come”, underlying profit in the six months to July 31 rose to £442 million from £410m a year ago, on turnover that was up 7.4% to £8.7bn.
Investors responded to the news by sending its shares up 12.2p, or 4.2%, to 301.6p.
Longer opening hours, a focus on fresh produce and promotional initiatives helped draw in a record average of 11.5 million shoppers to Morrisons stores each week. Promotions account for 38% of its sales.
Mr Philips said Morrisons had seen a 40% rise in pork sales and a boost in sales of other fresh food items on the back of a 20% increase in its customers cooking from scratch.
The group extended its fresh food lines by 35% over the period adding products such as mini- pineapples and prickly pears, as Mr Philips sought to differentiate the company from its rivals.
Morrisons is also piloting a sushi bar in one store and a chocolate fountain in another.
The company, which employs more than 130,000 people at around 450 stores in the UK, has opened two trial convenience stores in the north of England as it looks to compete with successful formats developed by rivals Tesco and J Sainsbury. The group hopes to have six open by the end of the year although none will be in Scotland.
Morrisons has also earmarked £3 billion to explore opening online food and non-food stores.
The company is to pay an interim dividend of 3.17p per share on November 7.
It has pledged to increase payouts by 10% over each of the next three years with a third of the total payment coming at the interim stage.