McColl’s Retail Group, the UK’s leading neighbourhood retailer, has today announced it has agreed on a new supply arrangement with Wm Morrison Supermarkets plc.
The agreement represents a significant milestone in McColl’s’ strategic goal of becoming a food-led convenience retailer, giving even greater access to Morrisons grocery expertise and brand.
This partnership is supported by McColl’s existing banking syndicate, who have amended the existing debt facilities to provide increased headroom in order to support the McColl’s strategy and extended the maturity of the facility to February 2024.
Extension of Morrisons supply partnership
Under the terms of the new agreement, Morrisons will supply the entire McColl’s estate of over 1,200 stores with a best-in-class convenience range for a further three year period to January 2027, giving continuity of supply for the next six years.
McColl’s will continue to have access to a supermarket-quality fresh food and grocery offer through the Safeway brand, where further range extensions are planned.
Morrisons is now the single wholesale supplier across the entire McColl’s estate. This enables the Company to work in partnership with Morrisons to seek continuous improvement and further simplify its operations, whilst ensuring the best value across an enhanced product range for customers.
Morrisons Daily conversions
The 31 existing Morrisons Daily stores in the McColl’s estate have consistently delivered positive like-for-like sales performance, driven by their higher mix of grocery sales, breadth of offer and value proposition. These stores have performed strongest during the pandemic and are in the best position to meet customer demand in the future.
Under the terms of the new agreement Morrisons will support on the conversion of 300 McColl's convenience stores to the Morrisons Daily fascia and format – selling Morrisons own-brand products - over the next three years. The conversion includes the existing 31 Morrisons Daily stores currently in operation.
New banking arrangements
The updated facility consists of a £100m revolving credit facility and an amortising £67.5m term loan.
Jonathan Miller, Chief Executive of McColl’s, said, “I am delighted to extend our partnership with Morrisons by a further three years, ensuring the continued supply of a supermarket-quality offer across our entire estate, as well as the planned conversion of additional Morrisons Daily stores.
'Today’s important milestone has been achieved with the welcome support of our banking syndicate, enabling us to execute our strategy to deliver sustainable profitable growth.
“In Morrisons we retain a long-term partner with best-in-class sourcing and manufacturing capabilities and a leading convenience offer for the local neighbourhood communities we serve across the country.
“Despite the challenges presented by COVID-19, the new partnership represents another significant step forward in achieving our strategic goal of increasing our fresh food offering in our store estate, while offering the best value for money for our customers.
'We are well positioned to continue enhancing our convenience offer and improving the quality of our estate at a time when the importance of neighbourhood stores has never been greater.”
David Potts, Chief Executive of Morrisons, said, “Today’s agreement is another example of Morrisons extending the reach of our popular brand. In doing so, we are building a broader, stronger Morrisons for customers, and leveraging our existing assets to achieve capital light, profitable growth.
“We are delighted to be further expanding our successful partnership with McColl’s and look forward to growing together for many years to come.”
Current trading
The trading trends exhibited in FY20 have continued into the new financial year, driven by the third national UK lockdown. Strong demand for the Company’s local convenience offering led to like-for-like sales1 growth of +7.9% in the 12 weeks to 21 February 2021, whilst a shift in the pattern of trade away from higher-margin impulse categories continues to generate lower gross margins overall.
Looking ahead, the significant uncertainty over the macroeconomic and consumer environment, make it difficult to accurately forecast sales patterns and margin mix changes. However, as lockdown restrictions ease through the course of the year, the Company would expect the sales mix to normalise. Regardless, McColl’s will adapt its business to changing customer demand, whilst focusing on its strategy to become a grocery-led convenience retailer.
