Morrisons has held exploratory talks with Costcutter as it seeks to gain a proper foothold in the convenience market, The Grocer has learned.

After launching its first M Local format last June, it has opened five stores so far, and promised to open 20 by the end of this year and 70 by the start of 2014.

But The Grocer understands Morrisons is looking at M&A opportunities within the convenience sector to boost its presence substantially. And having previously run the slide-rule over convenience and CTN chain Martin McColl, it has been in talks with Costcutter-owner Bibby Line Group since the end of last year about an acquisition.

A source familiar with the talks told The Grocer that “Morrisons is having a really proper look at the Costcutter business”.

With two years left to run on Costcutter’s current deal with Nisa, one scenario under discussion was for Morrisons to buy Costcutter’s 157 company-owned stores. Costcutter franchisees could either sell out to Morrisons or take advantage of its buying power, while working in conjunction with Bibby Line Group to set up a convenience based supply chain.

But the talks also raised the possibility of Morrisons buying the Costcutter fascia in its entirety, effectively turning Morrisons into a wholesaler to independent retailers.

Costcutter currently has around 1,500 independently-owned stores operating under its symbol fascia.

Last week, Costcutter MD Nick Ivel said the chain was currently weighing up three options. As well as extending its deal with Nisa beyond 2014, the third option is to find an alternative distribution partner.

“We expect to announce the solution at our conference in September, but it could be announced in eight weeks’ time,” he said. “This will give our members better promotions, prices, a different emphasis. It will give them what they want, which is real ammunition to compete against the multiples.”

A Costcutter spokesman would not comment on the link with Morrisons, but said: “Costcutter is committed to securing the best possible supply deal for its retailers and negotiations are continuing. We are frequently linked to different organisations and we do not comment on any speculation.”

Morrisons said: “We do not comment on rumour and speculation.”

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