MarketLine Blog

Sorry for any inconvenience caused? Morrisons expected to sell off its M local convenience stores

Morrisons, Britain’s fourth-largest grocer, is in advanced talks to sell its convenience stores to investment firm Greybull Capital as new chief executive David Potts seeks to focus the business on its traditional supermarket estate.

Greybull was working with a team of industry executives to take over about 150 stores that trade as M local and generate annual sales of about GBP 300m (approximately $494m).

The convenience sector has become a primary focus for many UK retailers reeling from the discounter industry disruption, which has seen Aldi and Lidl wrestle market share at the expense of the Big Four; Tesco, Asda, Sainsbury, and Morrisons. The discounters have also sparked price wars which have eroded margins in the bigger stores. Convenience is the priority in these smaller stores, and price competition is not as intense, making it an appealing prospect for companies looking to restore their margins. Sainsbury’s is now making more money from its convenience sector than supermarkets, and the Co-operative (the fifth largest player) has abandoned supermarkets altogether to shore up its core convenience offering.

Morrisons was a late entrant into Britain’s fast-growing convenience sector, opening its first stores in 2011. Though it has since grown at pace, its convenience presence is tiny compared with bigger rivals Tesco and Sainsbury and has little bearing on its profit performance. Although the former CEO Dalton Philips attempted to augment its presence, it failed to deliver the level of trading it had anticipated and was criticized for its chaotic approach to site selection.

Morrisons said in March it would close 23 M local stores during its 2015-16 financial year and would significantly slow new openings. It would also review the M local project and approach to site selection. Potts, who joined as CEO in March 2015, has said he did not think M local was working in its current form and believed many stores were not in the right location. He has said his priority is improving the performance of Morrisons’ more than 500 core supermarkets and making the group simpler, leaner, and more price competitive.

While the convenience sector will continue to grow towards 2020, supermarkets will remain the dominant distribution channel for food retail and Morrisons’ late entry to the convenience sector could have cost it. The company is also attempting to advance in the online delivery sector after partnering with Ocado to gain infrastructure and scale quickly to compete with its other rivals. Online food retail is a growing sector in the UK, particularly in the South East of England.

Greybull Capital was renowned for saving airline Monarch from bankruptcy, giving the company GBP125m (approximately $205.8m) with it now on course to generate a profit this year. So far both companies have declined to comment on the move, which is expected to be announced in the coming weeks, as well as Greybull’s motives for the purchase.

For further information see:

Our case study “The Big 6 UK Food Retailers: How supermarkets are responding to the discounter threat

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