Morrisons has penned a lucrative wholesale deal to supply McColl’s convenience stores and newsagents across the UK.
The partnership will see the supermarket giant replace all of McColl’s existing supply arrangements “in time” – including its deals with Palmer & Harvey and Sainsbury’s acquisition target Nisa.
Morrisons, which began supplying Amazon with thousands of fresh, frozen and ambient products last year, will sell a mix of national brands and Safeway products to McColl’s 1,300 convenience stores and 350 newsagents.
The retailer resurrected the Safeway brand last year as part of its push into the wholesale market, which leverages its own vertically integrated supply chain.
Morrisons said the Safeway brand now comprises more than 400 products, which McColl’s will be given a one-year period of exclusive access to.
McColl’s said the “ground-breaking” partnership would “significantly advance” its fresh food credentials and improve its range.
The “phased” deal will get under way in January 2018, with Morrisons initially set to supply McColl’s 1,000 c-stores as well as its portfolio of newsagents.
The Bradford-based grocer said the “major” initiative would help it take its wholesale revenues past the £1bn mark.
By the end of 2017, Morrisons expects annual supply sales to surpass £700m, making a profit contribution from its 2018/19 financial year onwards.
Morrisons’ move comes as the mainstream supermarket operators make a play for the lucrative wholesale market.
Tesco is in the process of acquiring Britain’s biggest wholesaler in a £3.7bn deal, while Sainsbury’s is pursuing a takeover of retailer and wholesaler Nisa.
Morrisons boss David Potts said: “We are very pleased to partner with McColl’s and look forward to developing a long and successful relationship together. We are also pleased to be reviving the Safeway brand which we know customers will enjoy.
“This new partnership is a further example of Morrisons leveraging existing assets to access the UK’s growing convenience food market in a capital-light way. Wholesale supply will help make us a broader, stronger business.”
McColl’s chief executive Jonathan Miller hailed the deal as “a defining moment” for the business.
He added: “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.”
McColl’s was ‘low margin’ business for Nisa
Nisa chief executive Nick Read said: “We are disappointed that the tender process has been halted nine weeks early - before there had been a chance for follow up conversations and proposals - especially when sales at Nisa-supplied McColl’s stores were 8.4% ahead of budget.
“Nevertheless, Nisa has contracts in place with McColl’s that continue until June 2018 and March 2020, and we remain well placed to deliver our award-winning product to the specialised convenience sector.
“Nisa’s third party distribution model is highly flexible, enabling the company to quickly adapt to changes in demand. Moreover, current trading at Nisa is strong, and while we value all our members, the McColl’s business was a low margin contract.
“Accordingly, with strong trading, our recently announced new bank financing, and several new business wins, we remain well positioned to provide a sustainable business model for the benefit of all our members.”