Shares in the Bradford-based retailer fell by about 1% on reports of the sale to the turnaround specialist Greybull, which rescued Monarch Airlines last year. The investment firm was reportedly leading a group of retail specialists bidding to buy all the retailer’s 160 conveninece stores.
In March Morrisons revealed plans to close 23 convenience stores with the loss of 300 jobs. The retailer also said the future of its remaining convenience stores was under review.
Shore Capital analysts Clive Black and Darren Shirley said the peak in supermarket convenience store chain sales had passed. “Morrison’s CVS [convenience store] business has not been a solution to a strategic problem to our minds with the probability that many stores are loss-making and lacking soothing current sales and contribution trajectories,” said Black and Shirley.
Five key components
The analysts identified five key components to UK convenience store retailing. Those were: convenient food-to-go, such as Greggs, discounters, such as Aldi and Poundland, forecourt, such as Applegreen, neighbourhood, such as Booker and supermarkets, including Tesco Express and Sainsbury’s Local.
But many of the prime supermarket convenience sites have been taken by Sainsbury, Tesco, the Co-op and “some very able” symbol operators.
Also, supermarkets’ efforts to boost their competitiveness – in response to competition from discount retailers Aldi and Lidl – was leading to re-assessment of convenience stores. “The collective steps to change the attractiveness of superstores by the majors – cutting prices, improving store standards and bolstering service levels – makes for a reassessment of the comparative competitiveness of supermarket CVS versus superstores to our minds.
‘Re-engineered superstore’
The re-engineered superstore contains a lot of ‘convenience’,” said Black and Shirley. That meant re-engineered superstores represented a new challenge for the supermarket convenience segment in particular.
Morrisons, which was a late arrival to the convenience store market, faced particular challenges in a changing market. “We have always felt that the odds were stacked against success in the supermarket CVS market, noting as we do how it has taken Tesco and Sainsbury many years to make CVS stores work from a profitability perspective,” said the analysts.
The retailer had to contend with “poorly acquired and inferior sites”, which led the retailer to ditch the worst 23 outlets five months ago.
Whether or not press reports of a convenience store deal proved accurate, the analysts praised the way ceo David Potts was getting to grips with the priorities of the business. That included: assembling a talented senior management team to improve the labour process and customer proposition that will allow it to trade more effectively at its superstores.
“From doing this latter activity a lot of other things fall into place for Morrisons, in our view,” said Black and Shirley. “These include capitalising upon its vertical integration, its high freehold participation, low pension responsibilities and scope at least to be materially free cash generative.”
No one from Morrisons was available to comment on reports of a sale.
Meanwhile, the retailer is due to report interim results on September 10.
Shore Capital guide to convenience retailing
- Convenient food-to-go, such as Greggs
- Discounters, such as Aldi and Poundland
- Forecourt, such as Applegreen
- Neighbourhood, such as Booker
- Supermarkets, including Tesco Express and Sainsbury’s Local