An acquisition of UK retailer Costcutter by Morrisons could give the grocer greater scope for expansion in convenience retail in the south of England, according to Conlumino analyst Simon Chinn.
Responding to reports in The Scotsman yesterday (18 June) that Morrisons has held exploratory acquisition talks with convenience retailer Costcutter, Chinn told just-food the reported discussions have likely been driven by a realisation for the grocer that convenience has now become “big” in food and grocery retail.
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“An acquisition could be on the cards,” Chinn told just-food. “If Costcutter is looking to get rid of some of its stores, Morrisons might select sites that would be beneficial to them, and that could offer them more scope for a greater presence in the southern part of the country, an area that Morrisons is looking to bulk up its presence where it competes with Tesco and Sainsbury’s.”
Chinn believes a deal with Costcutter could be “effective” for Morrisons but added that the grocer needs to ensure its M-Local convenience format is “performing up to standard” before it considers taking on more stores.
“Morrisons hasn’t even finalised what it wants from its convenience concept yet, so if it went ahead with an a large scale acquisition it needs to ensure these stores are performing up to standard and are meeting expectations first,” Chinn said.
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Morrisons began rolling out its M-Local convenience store format last September. The retailer set out a strategy to make fresh food front and centre of the convenience offer.
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By GlobalDataChinn believes there would be a significant amount of “effort and investment” involved for Morrisons in bringing [Costcutter] stores up the standard that it trades in, with its focus on fresh.
“They’ve made good progress with that in some of their smaller format M-Local stores… but I guess the problem there is that they’re rolling out organically and slower than you would if you went through with an acquisition of an existing chain.”
Investec analyst Dave McCarthy told just-food he would be “a little bit surprised” if an acquisition was to occur, given that Morrisons is opening convenience stores around 3,000 sq ft and above.
“Morrisons is trying the bigger format so if Costcutter is below the 3,000 sq ft it might give them critical mass or it might give them a bunch of stores that are disadvantaged going forward, and if we get a relaxation in the Sunday trading laws, the world could change. It could be a good deal and it could be a completely wrong deal.”
Morrisons declined to comment on the reports when contacted by just-food.
A spokesperson for Costcutter also declined to confirm the reports and said: “Costcutter Supermarkets Group is committed to securing the best possible supply deal for its retailers and negotiations are continuing. We are frequently linked to many different organisations and we do not comment on any speculation. We hope to be able to make a further announcement within the next three months.”
