Neighbourhood convenience retailer McColl’s (MCLS) surges 9.2% higher to 255p after inking a ‘groundbreaking’ new supply chain partnership with Morrisons (MRW).
This tie-up sees the Safeway brand return to UK high streets more than 13 years after Morrisons bought the supermarket in a £3bn deal.
Vertically integrated grocer Morrisons, in fact the UK’s second biggest food manufacturer, is marked up 1.8p to 242.2p as investors applaud this material expansion of the supermarket’s wholesaling activities, while McColl’s rival Conviviality (CVR:AIM) falls 5p to 379.75p as investors assess the evolving competitive threat.
GOOD NEIGHBOURS
Following a competitive process, McColl’s has reached an agreement for Morrisons to supply its growing estate of 1,300 convenience stores and 350 newsagents with fresh food and groceries under the relaunched Safeway brand, which McColl’s will ‘enjoy exclusively’ for 12 months.
‘This will significantly advance McColl's fresh food credentials and provide its customers with an enhanced range,’ reads today’s statement. ‘The agreement also allows McColl's to improve its commercial terms and simplify its operations as it migrates to a single wholesale partner for the entire estate.’
SAFEWAY RETURNS
McColl’s CEO Jonathan Miller enthuses: ‘As a large, leading multiple grocery retailer with its own outstanding food manufacturing capability Morrisons stands apart from the competition, and we are truly delighted to be entering into partnership with them.
In McColl's, Morrisons gain a long-term partner of significant scale with a growing neighbourhood convenience estate and in Morrisons we gain access to their best-in-class sourcing and manufacturing capabilities. This will enable us to provide our customers with the highest quality fresh food through the relaunch of the much loved and trusted Safeway brand. This is a defining moment for McColl's and builds on the transformational deal we announced last year to acquire 298 high quality convenience stores (from Co-op).'
Morrisons has been tantalising the market with mutterings over the pending return of the Safeway brand for a while. The McColl’s deal will involve a notable re-introduction of the label into 1,300 stores and 350 newsagents in time; the remaining 300 McColl’s convenience stores will migrate over when the existing supply agreement with their erstwhile owner expires.
TALKIN’ BOUT A REVOLUTION
‘We welcome the exclusivity arrangement as it allows Morrisons good time to focus on its new wholesale client but it also displays a wider ambition for the brand to perhaps be present in other outlets in time,’ writes Shore Capital’s Darren Shirley.
The analyst also explains that ‘the supply agreement with McColl’s comes as the wholesale grocery and CTN segment in the UK goes through a near revolution, the most notable spark perhaps being the proposed merger between Tesco (TSCO) and Booker (BOK), now subject to a UK Competition & Markets Authority (‘CMA’) review, plus wider speculation of Sainsbury’s (SBRY) interest in acquiring NISA.’
Wholesaling is now a key part of Bradford-based Morrisons growth strategy under CEO David Potts (pictured above), the architect of the supermarket’s unexpectedly successful turnaround who has previously wowed investors with supply agreements with Jeff Bezos-bossed Amazon and then with leading forecourt operator Rontec.
