As The Co-operative Group continues to sell stores out of its enlarged portfolio (most recently to Asda and Costcutter) it is a reminder that, while there is a severe malaise in the M&A market in the broader consumer sector, there is still plenty of activity in the grocery sector.
In fact, while new stores have played a significant part in reshaping the sector over the past 10 years, more than 6,000 stores (and more than 30 million sq ft) have changed hands with a value in excess of £10bn during the period – and that excludes the putative bids for Marks & Spencer and Sainsbury's.
Morrisons’ bid for Safeway in 2003 and The Co-op’s acquisition of Somerfield last year had the most impact on the overall shape of the sector, transforming Morrisons into one of the major multiples and the Co-op into the largest operator of small format space by some way. But these deals also led to considerable further activity as each purchaser disposed of significant numbers of stores to different operators to meet regulatory requirements or their strategic or financial objectives.
In the most part, grocery stores and businesses have been acquired by other operators who have rebadged them in the belief that they will generate more profits from each location; and while the larger players have dominated much of this activity (no great surprise) we have seen at least 10 other buyers in the past two years as well as some less obvious trades such as Waitrose buying Woolworths stores and Iceland acquiring Simply Food stores (including taking back one that it previously sold to M&S).
A number of financial buyers have looked hard at Sainsbury's (and no doubt they ran their slide rules over others too), attracted particularly by its property portfolio, but none of these ideas was consummated and it is unlikely that they will re-emerge in the foreseeable future given the state of the capital markets.
But private capital has occasionally played a key part in reshaping the sector where trade buyers have been unwilling or unable to acquire portfolios of stores (eg Somerfield) or businesses (eg Big Food Group). While any further significant corporate activity or consolidation seems unlikely given the obvious regulatory constraints, we do expect further trade in grocery stores, particularly smaller ones; and buyers will come in all shapes and sizes – not just the major multiples.
Clive Baker is managing director of McQueen.