No more than 50 of Woolworths’ stores would be converted to the Iceland fascia if Malcolm Walker is successful in buying the ailing retailer, a senior retail source has predicted. 

Woolworths was forced to go public last weekend on its rejection of a £50m offer for the 815 stores, which did not include its pension and leasehold obligations, after details of an approach by Iceland boss Walker, backed by a Baugur-led consortium, were leaked to the media.

However a leading retail insider told The Grocer that with 660 Iceland stores in the UK, including most major cities, a wholesale conversion to the frozen food fascia was unlikely. 

“I expect Walker will want to convert no more than 50 stores to Iceland. He will then seek to sell the remaining larger stores to a retail chain such as Bhs or Arcadia,” said the source. 

“The difficulty in the past has been that, as soon as you break up the chain, you lose the contribution of the larger stores to the gross margin.” 

The source suggested that for the majority of the stores, a discount format might be favoured, to include convenience foods, but was unlikely to extend to a full grocery offer, he added. 

“I’m sure some stores are capable of conversion, but Woolworths has poor car parking and delivery access. There is also no proper refrigeration so to introduce fresh and chilled food would not be cheap.” 

Another senior retail source added that the formula pioneered by Wilkinsons might work. “The sales per square foot in an Iceland would be higher. In other locations, Walker might try a ‘store within a store’ format, using Iceland instead of the Somerfield concession currently available in some Woolworth stores. Or he might look to replicate the success of Wilkinsons, with a limited grocery offer.”

Woolworths said Walker’s offer was unacceptable because it undervalued its assets and did not include pension and leasehold liabilities. The share price rose 0.5p to 7p after Woolworth chairman Richard North appeared ready to open talks.

Merger plan number four

Woolworths is no stranger to takeover attempts – this is the fourth in just nine years.

In 1999, its then owner Kingfisher discussed a merger with Asda that would have created a £17bn retail giant. 

Although Allan Leighton, then CEO of Asda, said the merger would have allowed Asda and Woolworths to expand their food and GM offers, the plans were withdrawn and Wal-Mart bought Asda. Woolworths was demerged from Kingfisher two years later.

Then in 2002 Woolworths discussed a merger with Bhs. Woolworths ended talks to focus on its recovery plan.

In 2005, Woolworths was once again a bid target, this time from private equity firm Apax Partners. Apax offered 58.2p a share but after carrying out due diligence decided not to proceed. 

Apax bought Somerfield six months later.