Analysis: Why Morrisons and McColl’s is more than a marriage of convenience

The news that the supermarket giant has won the lucrative contract to supply McColl’s 1,650 convenience stores and newsagents sent proverbial shockwaves coursing through the grocery industry.

Following last year’s initiatives to start supplying etail titan Amazon and revive the Safeway brand to sell into c-store operators, this morning’s latest revelation was perhaps Morrisons’ biggest statement of wholesaling intent yet.

McColl’s might not be the sexiest of retail names in a globalised, multichannel world, but winning its wholesale contract from Nisa and Palmer & Harvey represents a major coup for David Potts, Trevor Strain and co in Bradford.

Although both retailers remained tight-lipped on the exact value of the deal, the partnership will go some way towards helping Morrisons reach its £1bn target in annual wholesale revenues.

And McColl’s boss Jonathan Miller tells Retail Week the deal to stock Safeway-branded goods will have “a material impact on sales and margins”.

“It’s great testament to Morrisons’ strategy. They always insisted that their expansion into wholesale, and indeed their expansion in general, would be capital-light”

TCC global insight director Bryan Roberts

“There’s a great degree of mutual benefit,” TCC global insight director Bryan Roberts observes.

“It’s great testament to Morrisons’ strategy. They always insisted that their expansion into wholesale, and indeed their expansion in general, would be capital-light.

“What they have achieved with Amazon, with their small petrol forecourt franchise and now McColl’s, shows that they are very adept at gaining volume in a low-cost fashion.

“This is a great way for Morrisons to indirectly get more market share and some very decent volumes at very low risk, so it’s an admirable move.”

Gamble for McColl’s?

Although he ultimately expects the revived Safeway brand to be a success for McColl’s, Roberts suggests the deal represents “a bit more of a gamble” from the c-store chain’s perspective, as it prepares to replace Nisa’s Heritage ranges with the newly relaunched label.

Roberts argues that, despite Morrisons’ quality, provenance and vertically integrated credentials, there remains “a degree of uncertainty” about how the Safeway ranges will be received by customers.

But Miller insists the deal “ticks all the boxes” for McColl’s and will prove to be “a game-changer” for the business.

“They have quite a unique proposition and we were able to see that first-hand and try the products. The Safeway brand, coupled with the backing of the Morrisons quality, was very compelling”

McColl’s chief operating officer Dave Thomas

McColl’s chief operating officer Dave Thomas explains: “For me, the most important thing was having a better customer offer, particularly around fruit and veg, fresh meat, chilled food – we know that the supermarkets have a better quality offer than any of the wholesalers.

“We spent a lot of time looking at the Morrisons model. They are vertically integrated, so they own a lot of their own farms and fisheries and they are the second-largest food manufacturer in the UK.

“They have quite a unique proposition and we were able to see that first-hand and try the products. The Safeway brand, coupled with the backing of the Morrisons quality, was very compelling.

“We were very pleased with Heritage, but Morrisons just takes us to that extra level.”

Wider benefits

But it may not just be McColl’s stores that reap the benefits of this deal.

Retail Remedy partner Phil Dorrell suggests the partnership will allow Morrisons to lower prices, or benefit from healthier margins, in its own 400-strong supermarket estate – piling pressure on its grocery rivals in the process.

“The ability to get into wholesale functionality with McColl’s is a blessing for Morrisons,” Dorrell says.

“It drives what every supplier, or manufacturer or farm wants – volume.

“The knock-on effect isn’t just that they make their production facilities more efficient, it means their ability to offer goods at lower prices in their own supermarkets is increased. It’s a win-win situation.”

Safeway’s future

While Morrisons has so far focused on resurrecting Safeway as a brand, sources close to the grocer refused to rule out the possibility of the McColl’s deal sparking a revival of Safeway stores.

Thomas takes a similar stance.

“We’ve not made any decision on that yet, but it’s an interesting idea that we will consider,” he admits.

But should that really form a part of the grander plan?

Roberts is quick to dismiss the merit of a bricks-and-mortar Safeway push.

“It might be a temptation, but I don’t see how it would do Morrisons any favours,” he asserts.

“Safeway carries that nostalgic fondness, but it was never really looked on as a c-store brand.

“I also don’t see why Morrisons would want that, or encourage that, if in 18 months’ time they want to start flogging the Safeway brand to other retailers or independents.”

Dorrell thinks otherwise, suggesting Safeway stores could attract a different kind of customer that Morrisons has, thus far, failed to win over.

“The ability to enhance the Safeway brand through McColl’s, to a point where it’s viable as a standalone store, is absolutely something they should be looking at”

Retail Remedy partner Phil Dorrell

“When Morrisons took over Safeway, it was very difficult for them to transfer the Safeway customers into Morrisons, especially down South,” he recalls.

“The ability to enhance the Safeway brand through McColl’s, to a point where it’s viable as a standalone store, is absolutely something they should be looking at.

“It would allow them to capture customers that would never go into a Morrisons store and to take a different route into the ‘premiumisation’ of their offer.

“That demographic, between Sainsbury’s and Waitrose, is one they are missing out on, particularly in London, but it’s one that Safeway captured.”

Whether or not Safeway’s return extends into physical space, Morrisons and McColl’s could blossom into a marriage made in heaven, rather than one of convenience.