B&M shocked the market this morning when it snapped up discount food retailer Heron Foods. We look at how the City and other retail watchers reacted.
Jonathan Pritchard, retail analyst, Peel Hunt
“Many expected that B&M’s next strategic move would be in mainland Europe, but the acquisition of the 251-store Heron Foods chain in the North and Midlands of the UK makes strategic and P&L sense.
“Heron trades as a discount c-store retailer, and was initially a freezer centre which has evolved into offering a fuller grocery range. The stores run an EBITDA margin of about 7% (which B&M may be able to improve) although there will be learnings going the other way as well on frozen, a gap in the B&M armoury.
“All in all a sensible deal, which is helpfully earnings-per-share enhancing to the tune of 5-7%.”
Herons are small and many near or next to B&Ms— Andy (@Wroe_Tweet) August 2, 2017
Close the Herons and put them into the big B&M sheds could well be the perfect storm
Wayne Brown, analyst, Liberum
“This deal gives B&M another growth channel which is in a structurally favourable segment of the market and we can see why this would be appealing to the group.
“There is much consolidation in this segment of the market, with Tesco potentially acquiring Booker, McColl’s having signed a new supply agreement with Morrisons and Sainsbury’s rumoured to be wanting to buy Nisa.
“B&M state that much of the growth in this market has been achieved at premium pricing and it sees an opportunity here.”
Quite a surprise - but adds depth to their food offer and additional retail space. Their offer is certainly chiming with customers!— Savvy Marketing (@savvythinking) August 2, 2017
2/2 - it continues the trend of shoppers splitting baskets away from the big 4 -increasing downward volume pressures on the major operators— Savvy Marketing (@savvythinking) August 2, 2017
Matthew Taylor, analyst, Numis
“We believe that Heron Foods has significant expansion potential and will also bring synergy benefits in terms of general scale and expertise in frozen foods.
“B&M gains an additional discount brand operating in small stores. The acquisition enables it to enter the new but related product categories of frozen and chilled.
“There is a shared culture with both businesses being founder-led [and] focused on a limited SKU count of big brands at discount prices rather than own-label grocery.
“Although the business is largely complementary, synergies should be available from improved buying power and scale in ambient food, the potential to trial B&M’s alcohol ranges and selected FMCG products in Heron and the transfer of B&M’s expertise in logistics, store roll-out and IT systems.
“While Heron is currently a regional player growing at 15-20 new stores per annum, we think there is scope to expand nationally at a faster rate, acting as a disruptor in a mainly premium-priced market segment.”
Alistair Davies, analyst, Investec
“Whilst we were expecting any M&A to have been overseas, the strategic rationale does make sense to us.
“First, B&M is targeting one of the growth areas in food retail (online being the other), with a small store format (2,500 sq ft vs. circa 20,000 sq ft for new B&M stores) that has some, but not much, overlap.
“Second, convenience product historically has a price premium, allowing a discount format room to grow, with the business targeting 10-20 store openings per annum
“And third, with an offer geared towards chilled and frozen (50% of sales), Heron allows B&M to target a new product category.”